Macroconomics Midterm (Ch. 1-5)

5. Here are three things you could do if you do not attend your economics class: watch television with some friends (you value this at $25), read a good novel (you value this at $13), or go in to work (you could earn $20 during the economics class). The opportunity cost of going to your economics class is

$25, because this is the highest valued alternative forfeited

28. If consumers' surplus is $30 and the price paid for the good is $50, then the maximum price a buyer is willing and able to pay for the good is

$80.

13. If the price of good X is $90 and the price of good Y is $30, it follows that the relative price of one unit of good Y is ___________ unit(s) of good X

0.33

12. If the price good X is $100 and the price of good Y is $40, it follows that the relative price of one unit of good Y is ___________ unit(s) of good X

0.40

11. The economy can produce 15X and 15Y, 10X and 20Y, 5X and 25Y, or 0X and 30Y. It follows that opportunity cost of 1X is ___Y

1.0

5. Consider two points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is

3 apples.

16. Which scenario below most accurately describes the process by which a technological change can affect employment patterns across industries?

A technological advance makes it possible to produce more of good X with less labor. As a result, labor is released from producing good X. Some of this labor ends up producing goods Y and Z.

26. One point on a market supply curve represents $4 and 100 units quantity supplied. If there are three suppliers, and at a price of $4 one of the suppliers supplies 23 units, then which of the following combinations of price and quantity supplied might hold for the other two suppliers

At $4, quantity supplied could be 40 units for one supplier and 37 for the other.

7. Which of the following is an example of a positive economic statement

If you drop a ball from the top of a building, it will fall to the ground.

1. Which of the following statements is true?

In a world of efficiently used scarce resources, more of one good necessarily means less of some other and Efficiency implies that it is impossible to get more of one good without getting less of another.

2. Suppose the government imposes a price ceiling above the equilibrium price of a given good. Which of the following is the most likely result?

No change will occur in the market

5. Which of the following statements is true?

Price ceilings set below the equilibrium price cause shortages. Surpluses result when a price floor is set above the equilibrium price.

25. An economist says, "Technological advances have the power to lower the prices of many of the goods we buy." Here is how this works:

Technological advances lead to greater supply, which leads to lower prices.

10. Which of the following is a normative macroeconomics statement?

The central bank should increase the nation's money supply.

11. If the workers of a firm successfully negotiate an increase in wages, which of the following is most likely to happen?

The supply curve of the product the firm produces shifts leftward

13. Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, Congress repeals the tobacco firms' subsidies. Which of the following scenarios would likely occur?

The tobacco firms' supply curve would shift leftward, since it would now cost more to produce each level of output.

10. Which of the following is true about the relationship between price and quantity supplied?

There is usually a direct relationship between price and quantity supplied

19. In most societies, dollar price acts as the main rationing device. If dollar price weren't the main rationing device, would there still be a need for some rationing device to take its place?

Yes, because there is a need for a rationing device as long as scarcity exists

16. Which of the following will not shift a supply curve?

a change in the good's own price

22. A rightward shift in the demand curve for tennis balls could be caused by

a fall in the price of tennis rackets

17. At a price above the equilibrium price, there

a surplus

7. One of the effects of a price floor (set above equilibrium price) is

a surplus

4. The demand for seats in 10 a.m. classes at the university is higher than the demand for seats in 8 a.m. classes. The supply of seats is fixed. If the university prices classes at the price required to achieve equilibrium at 10 a.m., there will be

a surplus at 8 a.m

3. Suppose you live in New York City and the government has imposed price ceilings on apartment rental rates. You want to rent an apartment from Smith, who says that unless you buy the furniture in the apartment for $4,000, he cannot rent the apartment to you. The condition of buying the furniture could be considered

a tie-in sale

4. Jake is an excellent barber. However, all customers who come to him for a haircut must buy a bottle of shampoo. This type of arrangement is known as

a tie-in sale

8. Suppose the government sets a price floor that is above the equilibrium price for a given good. It can be said that at the price floor,

although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire

3. If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are

an inferior good

5. The demand for seats in 10 a.m. classes at the university is higher than the demand for seats in 8 a.m. classes. The supply of seats is fixed. If the university can only charge a single price and wishes to maximize the total number of seats purchased during the day, it should set the price

at equilibrium for 8 a.m. classes

3. Points that lie inside (or below) the PPF are

attainable but productive inefficient

10. Points inside (below) the production possibilities frontier (PPF) are

attainable, but productive inefficient

17. Something that provides disutility is called a

bad

9. To an economist, freeway congestion is a sign that the price to drive on the freeway is

below its equilibrium level

6. University A sets tuition at the equilibrium level based on price and then imposes entrance requirements in the form of minimum high school GPA and SAT scores. Enrollment at this school will likely be

below the equilibrium level because of the use of non-price rationing devices.

10. If there is freeway congestion at 8 a.m., we can reduce (or eliminate) the congestion by

building more freeways. raising the price to drive on the freeway at 8 a.m. encouraging workers to carpool..

3. The physical and mental talents people bring to production processes comprise the resource called

capital.

11. At college X and at college Y, students pay $3,000 less than the equilibrium tuition. If the supply of openings is the same at both colleges, it follows that a shortage of openings will be greater at

college X than college Y if the demand is greater at college X.

Decision making "at the margin" means making a choice based on __________ of a decision

comparing the additional benefits and costs

7. As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are

complements.

1. When economists speak of scarcity, they are referring to the

condition in which people's wants outstrip the limited resources available to satisfy those wants.

27. If the price a buyer pays for a good is $50 and the maximum price she would be willing and able to pay is $53, then ____________ is _______________.

consumers' surplus; $3consumers' surplus; $3

12. The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything---more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

correct if he is assuming a rightward-shifting PPF. and incorrect if he is assuming a PPF that does not change

2. Both country 1 and country 2 are located on their respective production possibilities frontiers (PPFs) for consumer goods and capital goods, but country 1 produces twice the output of both types of goods compared to country 2. It follows that

country 1's PPF lies further to the right than country 2's PPF

9. Microeconomics is the branch of economics that deals with

d. human behavior and choices as they relate to relatively small units --- an individual, a firm, an industry.

9. The law of supply states that price and quantity supplied are

directly related, ceteris paribus

Something that provides utility is called a

good

2. Which of the following is not one of the four broad categories of resources?

government

12. If the supply of aisle seats equals the supply of middle seats on an airplane, and the demand for aisle seats is _____________ than the demand for middle seats, then the equilibrium price of aisle seats will be ______________ the equilibrium price of middle seats

greater; higher than

15. Oil producers expect that oil prices next year will be higher than oil prices this year. As a result, oil producers are most likely to

hold some oil off the market this year, thus shifting the present supply curve of oil leftward

7. Good weather in cities such as San Diego

imposes indirect payments for the residents of that city.

20. The purpose of the ceteris paribus assumption is to allow economists to

isolate the relationship between two variables

9. Productive efficiency implies that

it is impossible to obtain gains in one area without losses in another

6. Minerals, animals, water and forests are all considered to be part of the resource category known as

land

17. A person has a comparative advantage in the production of a good when they can produce the product at a(n) ________ opportunity cost compared to another person

lower

13. When the government _____________ mortgage lending standards, the indirect result is likely to be _____________ home prices.

lowers; higher increases; lower

A price ceiling is a government-mandated

maximum price above which legal trades cannot be made.

6. A price floor is a government-mandated

minimum price below which legal trades cannot be made.

14. If the minimum wage law sets a price floor above the equilibrium wage in the market for unskilled labor, then the

minimum wage will create a surplus of unskilled labor

13. The law of increasing opportunity costs states that as

more of a good is produced, the higher the opportunity costs of producing that good

15. If the law of increasing opportunity costs is operable, and currently the opportunity cost of producing the 1,000th unit of good X is 0.5Y, then the opportunity cost of producing the 2,001st unit of good is X is most likely to be

more than 0.5Y

Colleges and universities use such things as grade point averages and standardized test scores as

non-price rationing devices

15. The number of unskilled workers employed before and after a change in the minimum wage is found to be the same. This means

nothing, unless we also know that the number of hours worked by each worker has not changed. the minimum wage could be below the equilibrium wage for unskilled labor.

8. Residents of cities with a reputation for good9.

pay a higher price for housing because the demand for housing is higher

1. One major reason for the law of demand is that

people substitute relatively lower-priced goods for relatively higher-priced goods

8. Attempts to determine "what is" are part of __________ economics

positive

29. What is the definition of producers' surplus?

price received minus minimum selling price

5. If the demand curve for a good shifts leftward,

quantity demanded is less at each price

2. A demand schedule is a numerical tabulation of the ___________________ of a good at different ____________________.

quantity demanded; prices

20. Price serves as a

rationing device. transmitter of information. means of determining who gets what of the available limited resources and goods. a and b

16. A minimum wage law (that sets the minimum wage above the equilibrium wage) can be expected

reduce the number of unskilled workers employed and/or reduce the number of hours worked by unskilled workers.

10. A price ceiling set below the equilibrium price will

result in a shortage of the good

9. A price floor (set above the equilibrium price) on rice will

result in a surplus of rice

11. A price floor set above the equilibrium price will

result in a surplus of the good

4. An increase in the number of buyers in a particular market for a good will result in a ___________________ for that good

rightward shift in the demand curve

12. An advance in technology in the production of good X causes

rightward shift in the supply curve for good X

19. Suppose that the price of butter is $3 per pound and the price of margarine is $2 per pound. If the price of butter rises to $3.90 and the price of margarine rises to $2.20, then the absolute price of butter has _______________ and the relative price of butter has _______________.

risen; risen

21. Suppose that for a given good demand increases and supply decreases at the same time. If demand increases by a lesser amount than supply decreases, then equilibrium price __________ and equilibrium quantity __________ for that good.

rises; falls

In economics, a synonym for utility is

satisfaction

11. The condition in an economy that makes a "rationing device" a necessity is

scarcity exists

4. A PPF can

shift inward or outward

8. Economic growth causes the PPF to

shift rightward

6. If people begin to favor science fiction novels to a greater degree than previously, the demand curve for science fiction novels

shifts rightward.

6. An increase in the quantity of resources available

shifts the PPF rightward

19. At a price for which quantity demanded exceeds quantity supplied, a __________ is experienced, which pushes the price __________ toward its equilibrium value.

shortage; upward

18. If goods are not rationed according to price, if follows that

some non-price rationing device will be used to ration the goods.

23. An increase in the price of good B caused an increase in the demand for good C. This indicates that goods B and C are

substitutes

8. As the price of good A rises, the demand for good B rises. Therefore, goods A and B are

substitutes

24. One reads the following in a newspaper: "Today the president and Congress agreed to impose new restrictive quotas on Japanese cars coming into the country." As a result, an economist would predict that the

supply of cars in the country will fall and the (average) price of cars will rise.

20. On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve. There is a __________ at that price and the current price must be __________ the equilibrium price.

surplus; above

7. For each additional lamp produced, a constant opportunity cost is incurred in terms of bookshelves. This means

that for every lamp produced, a constant number of bookshelves is forfeited

18. Saying "the marginal costs are greater than the marginal benefits" is the same as saying

the additional costs are greater than the additional benefits.

12. Opportunity cost is the value of

the best (or most highly valued) forfeited alternative.

3. If more people join carpools and travel to work together

the demand curve for freeway space shifts leftward.

4. The opportunity cost of attending college is

the highest valued alternative one forfeits to attend college

14. If a production possibilities frontier (PPF) is concave outward, it follows that

the opportunity cost (of producing the good on the horizontal axis) rises as more of the good is produced.

15. Which of the following would NOT be considered a macroeconomic topic

the reasons for a decline in the price of crude oil

30. Resource X is necessary to the production of good Y. If the price of resource X falls

the supply curve of Y shifts rightward

14. Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this

the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price

17. If the minimum wage is set above the equilibrium wage, then

there will be fewer labor hours purchased by employers than at the equilibrium wage

18. On a supply-and-demand diagram, equilibrium is found

where the demand and supply curves intersect.