ECON midterm 2019
The marginal gain from Kevin's fourth hour of work, from 11:00 AM to noon, is10problems.
10
Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of oil) would allow both Germany and Spain to gain from trade? Check all that apply.
17 barrels of oil per pound of cheese 1 barrel of oil per pound of cheese 4 barrels of oil per pound of cheese 7 barrels of oil per pound of cheese
According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?
2015 - check image 21
Given this information, in order to use his 4 hours of study time to get the best exam score possible, how many hours should he have spent working on problems, and how many should he have spent reading? 0 hours working on problems, 4 hours reading 1 hour working on problems, 3 hours reading 3 hours working on problems, 1 hour reading 4 hours working on problems, 0 hours reading
3 , 1
Suppose that Spain and Germany consider trading cheese and oil with each other. Spain can gain from specialization and trade as long as it receives more than 3 barrels of oil for each pound of cheese it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than1/11 pound of cheese for each barrel of oil it exports to Spain.
3, 1/11
The marginal, or additional, gain from Kevin's second hour of work, from 9:00 AM to 10:00 AM, is 30problems.
30
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce 32 million bushels per month, and the country that produces jeans will produce 80 million pairs per mont
32, 80 see image 3 and 4
When the two countries did not specialize, the total production of rye was 23 million bushels per month, and the total production of jeans was 68 million pairs per month. Because of specialization, the total production of rye has increased by 9 million bushels per month, and the total production of jeans has increased by 12 million pairs per month.
9, 12
Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.
A new mobile device for personal computing became available for purchase. Energy drinks became increasingly popular on college campuses between 2017 and 2019 due to significant improvements in flavor, but this quality change is hard to measure. As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers. Professors required each student to buy 10 notebooks, regardless of the price.
Suppose that Spain and Germany both produce oil and cheese. Spain's opportunity cost of producing a pound of cheese is 3 barrels of oil while Germany's opportunity cost of producing a pound of cheese is 11 barrels of oil.
By comparing the opportunity cost of producing cheese in the two countries, you can tell that Spain has a comparative advantage in the production of cheese and Germany has a comparative advantage in the production of oil.
A decrease in the price of a Chinese-made car that is popular among U.S. consumers
CPI
Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.
Cho's labor The $150 Bob spends to purchase legal service from Rowan and Martin Associates The car wash Cho receives
Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.
This monetary policy increases the economy's demand for goods and services, leading to higher product prices. In the short run, the change in prices induces firms to produce more goods and services. This, in turn, leads to a lower level of unemployment.
Immediately after an ice storm brought down power lines throughout the region, hardware stores were sold out of batteries and flashlights. However, within a couple of days, special deliveries brought in extra batteries and flashlights, and everyone who wanted to buy a flashlight or batteries was able to do so.
Which of the following principles of economic interaction best describes this scenario? Markets allocate goods effectively. All costs are opportunity costs. When markets do not achieve efficiency, government intervention can improve overall welfare. There are gains from trade. Points:
Suppose the large number of bike accidents in a small town results in new legislation that requires all citizens of the town to wear specialized bike helmets when riding. These new helmets reduce the probability of head trauma by 25% during a bike accident.
While the new helmets decrease the probability of a serious head injury resulting from a bike accident, they also incentivize cyclists to ride less safely, which could increase the number of bike accidents and thus head injuries to cyclists.
Before you started applying for college, a job recruiter offered you a full-time cashier position at a local retail store, earning an after-tax salary of $27,000 per year. However, you turn down this offer and attend your first year of college. The additional monetary cost of college to you, including tuition, supplies, and additional housing expenses, is $33,000.
You decide to go to college, probably because you value a year of college at more than $60,000
An accountant starts a client's 2018 tax return on April 14, 2019, finishing it just before midnight on April 15, 2019.
excluded
Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 25, 2018. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2018. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)
excluded
Roadway Motors, a U.S. automobile company, produces a convertible at a plant in Germany on March 27, 2018. Roadway Motors imports the convertible into the United States on May 18, 2018.
excluded
A house party plays music at a very high volume, disturbing other residents in the neighborhood.
externalty
Kenji earns $500 per week working for Pillmart Pharmacy
factor
Lucia earns $825 per week working for the Medical Clinic.
factor
True or False: According to the previous table, the golfer with the highest PGA winnings in nominal dollars is not the same as the golfer with the highest PGA winnings after adjusting for inflation.
false
True or False: Gross domestic product (GDP) cannot be used to measure the economy's income.
false
True or False: The market for tomatoes does not exhibit the two primary characteristics that define perfectly competitive markets.
false
True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.
false
The following graph shows the market for roses in 2009. Between 2009 and 2010, the equilibrium quantity of roses remained constant, but the equilibrium price of roses decreased. From this, you can conclude that between 2009 and 2010, the supply of rosesincreased and the demand for rosesdecreased .
increase, decrease
If the U.S. government were to institute higher tariffs on imports, companies would stop outsourcing jobs.
positive
In the past decade, U.S. companies have outsourced millions of jobs overseas.
positive
Lucia spends $10 to buy a box of aspirin.
product
The amount of a good that buyers are willing and able to purchase at a given price
quantity demanded
The amount of a good that sellers are willing and able to supply at a given price
quantity supplied
A change in tastes of consumers that makes them desire more peanut butter
shift
A change in technology that makes it more costly to produce peanut butter
shift
A change in the expectations of consumers about prices
shift
An increase in the number of producers
shift
A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices
supply curve
A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices
supply schedule
Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply.
The quality of goods available to consumers Funds spent by city governments to renovate their buildings The loss of enjoyment people incur when scenic land is converted to commercial use The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government
Suppose Sweden produces only smartphones and tablets. The resources that are used in the production of these two goods are not specialized—that is, the same set of resources is equally useful in producing both tablets and smartphones.
The shape of Sweden's production possibilities frontier (PPF) should reflect the fact that as Sweden produces more tablets and fewer smartphones, the opportunity cost of producing each additional tablet remains constant .
A decrease in the price of peanut butter
movement along
Companies that outsource jobs are acting immorally.
normative
The U.S. government should institute higher tariffs on imports.
normative
Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology. Your professor claims that one of the curves found on the following graph correctly illustrates the supply curve for CDs:
(check image 7) Because you understand the law of supply, you can deduce that the correct graphical representation of the supply for CDs must be S1 . Moreover, you know that at a price of $10 per CD, the quantity supplied is five million CDs.
The gross domestic product (GDP) of the United States is defined as the market value of all final goods and services produced within the United States in a given period of time.
2. Activities included (and not included) in the calculation of GDP
If the United States government raises the income taxes on the wealthiest Americans, while increasing welfare payments to the poorest Americans, the result will likely because decrease in efficiency andan increase in equality in the United States.
All societies face a trade-off between equality and efficiency.
graph 1: straight graph 2: curved
Based on the previous description, the trade-off Sweden faces between producing tablets and smartphones is best represented by Graph 1 .
The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
Based on this model, households earn income when firms purchase factors in factor markets.
The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
Based on this model, households earn income when firms purchase labor and capital in markets for factors of production.
Because you understand the law of demand, you can deduce that the correct graphical representation of the demand for CDs must be________Moreover, you know that at a price of $10 per CD, the____________is five million CDs.
D1. quantity demanded -- check image 5
P=A×MP=A×M •P=Price LevelP=Price Level•M=Money SupplyM=Money Supply•A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level?
Economists do not usually develop theoretical models of the economy but only analyze summary statistics about the current state of the economy. Unlike researchers in the hard sciences, economists cannot study complex relationships using data. An economist would persuade the Federal Reserve to change the money supply to various levels, and observe the resulting changes in the price level. An economist would look for data on past changes in the money supply and note the resulting changes in the price level.
Initially, suppose Arcadia uses 1 million hours of labor per month to produce rye and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce rye and 1 million hours per month to produce jeans. Consequently, Euphoria produces 15 million bushels of rye and 20 million pairs of jeans, and Arcadia produces 8 million bushels of rye and 48 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of rye and jeans it produces.
Euphoria's opportunity cost of producing 1 bushel of rye is 4 pairs of jeans, and Arcadia's opportunity cost of producing 1 bushel of rye is 2 pairs of jeans. Therefore, Arcadia has a comparative advantage in the production of rye, and Euphoria has a comparative advantage in the production of jeans.
Suppose the market for cars is unregulated. That is, car prices are free to adjust based on the forces of supply and demand.
If a shortage exists in the car market, then the current price must be lower than the equilibrium price. For the market to reach equilibrium, you would expect buyers to offer higher prices .
Now suppose Congress passes a new tax that decreases the income of Detroit residents.
If donuts are a normal good, this will cause the demand for donuts to decrease .
An increase in the price of a Waterman Industries deep-water reel, which is a commercial fishing product used for deep-sea fishing, made in the U.S., but not bought by U.S. consumers
GDP deflator
Despite their differences, with which proposition are two economists chosen at random most likely to agree?
Having a single income tax rate would improve economic performance. Immigrants receive more in government benefits than they contribute in taxes. Rent ceilings reduce the quantity and quality of available housing.
Suppose that both of the events you have just analyzed are partly responsible for the decrease in the price of hamburgers. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the decrease in the price of hamburgers?
If the price decrease was large, then the supply shift in the market for hamburgers must have been larger than the demand shift. If the equilibrium quantity of hamburgers increases, then the demand shift in the market for hamburgers must have been larger than the supply shift. Whichever change occurred first must have been the primary cause of the change in the price of hamburgers. If the equilibrium quantity of hamburgers increases, then the supply shift in the market for hamburgers must have been larger than the demand shift.
1. Markets and competition
In a perfectly competitive market, all producers sell identical goods or services. Additionally, there are many buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price takers .
Suppose Teresa is a sports fan and buys only baseball caps. Teresa deposits $2,000 in a bank account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $20.00.
Initially, the purchasing power of Teresa's $2,000 deposit is 100 baseball caps.
Which of the following government policies is least likely to increase the standard of living in the United States?
Investment in education and skills training for workers Raising the minimum wage paid to workers Investment in technology Investment in tools and capital for workers
Suppose that Paolo and Sharon are the only consumers of pizza slices in a particular market. The following table shows their weekly demand schedules:
check image 6
Felix and Janet are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing corn or rye or to produce corn on some of the land and rye on the rest.
Janet has an absolute advantage in the production of corn, and Janet has an absolute advantage in the production of rye. Felix's opportunity cost of producing 1 bushel of rye is 5 bushels of corn, whereas Janet's opportunity cost of producing 1 bushel of rye is 4 bushels of corn. Because Felix has a higher opportunity cost of producing rye than Janet, Janet has a comparative advantage in the production of rye, and Felix has a comparative advantage in the production of corn.
Cho earns $550 per week working for Rowan and Martin Associates.
Market for Factors of Production
Bob spends $150 to purchase legal service from Rowan and Martin Associates.
Market for Goods and Services
Cho spends $10 to get her car washed.
Market for Goods and Services
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes. Real GDP is not influenced by price changes, but nominal GDP is.
Suppose that Kevin and Maria are the only suppliers of shoes in a particular market. The following table shows their annual supply schedules:
check image 8
The following graph shows the market for donuts in Detroit, where there are over 1,000 donut shops at any given moment. Suppose the Surgeon General issues a public statement saying that consuming donuts is bad for your health.
check image 9
Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply.
The $500 per week Kenji earns working for Pillmart Pharmacy Lucia's labor The aspirin Lucia receives The $350 Kenji spends to purchase medical services from the Medical Clinic
Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator.
The GDP deflator for this year is calculated by dividing the value of all goods and services produced in the economy this year using this year's prices by the value of all goods and services produced in the economy this year using the base year's prices and multiplying by 100. However, the CPI reflects only the prices of all goods and services bought by consumers.
Which basic principle of individual choice do these statements best illustrate? Trade can make everyone better off. The cost of something is what you give up to get it. People usually exploit opportunities to make themselves better off. Markets are usually a good way to organize economic activity.
The cost of something is what you give up to get it.
Rina: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Musashi: I think a switch from the income tax to a consumption tax would bring growth in living standards. Rina: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't.
The disagreement between these economists is most likely due to differences in scientific judgments .
A consumer's optimal choice when buying a flat-screen TV
micro
For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.
check . image 14
Juanita makes $36 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $36 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.
check image 1
The following graph shows the market for cakes in San Francisco, where there are over 1,000 bakeries at any given moment. Suppose the number of bakeries increases significantly.
check image 10
The equilibrium price in this market is $40 per keyboard, and the equilibrium quantity is 250 keyboards bought and sold per month.
check image 12
Adjust the graph to illustrate your answer by showing the positions of the supply and demand curves in 2010.
check image 13
The following table shows data on consumption, investments, exports, imports, and government expenditures for the United States in 2018, as published by the Bureau of Economic Analysis. All figures are in billions of dollars.
check image 15
The effect of government regulation on a monopolist's production decisions
micro
A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices
demand curve
A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices
demand schedule
The following table shows the annual demand and supply in the market for shoes in San Francisco.
image 11
Consider a simple economy that produces two goods: pens and muffins. The following table shows the prices and quantities of the goods over a three-year period.
image 16
From 2016 to 2017, nominal GDPincreased , and real GDPincreased The inflation rate in 2017 was25% .
image 17
Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019.
image 18
Between 2017 and 2018, the CSPI increased by20%. Between 2018 and 2019, the CSPI increased by25%.
image 19
To convert the original earnings of Nicklaus, Trevino, and Stadler, use the formula for converting dollar figures from an earlier era into year 2017 U.S. dollars. Using those figures, fill in the following table, making sure to round your responses to the nearest U.S. dollar.
image 20
Sofaland, a Swedish furniture company, produces a table at a plant in Virginia on December 9, 2018. It sells the table to a college student on December 24.
included
Tasty's, a U.S. fast-food company, produces a hamburger at one of its many St. Louis locations on January 14, 2018. It sells the hamburger to a customer that same day.
included
When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the investment component of GDP while also decreasing net exports by the same amount. Therefore, the purchase of wood from Brazil causesno overall change in US GDP.
investment decreasing no overall change
The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises
law of demand
The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises
law of supply
Loggers are much _______ likely to supply wood to the market if property rights are not enforced.
less
Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the
local department store
In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to lower unemployment.
lower
The government's decision on how much to spend on public projects
macro
A single public utilities company is responsible for supplying electricity for an entire state. As a result, the utilities company can set the price of electricity.
market power
Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $560,000. This fourth parcel_______be sold, because _______will purchase it from the seller for at least the minimum price.
will not, no one