Macroeconomics Chapters 1-5 Homework

Suppose flowering plants generate a positive externality in consumption. If so, then

the private market equilibrium results in a quantity that is less than the efficient quantity.

Any model is based on making assumptions on making assumptions because:

1. Models have to be simplified to be useful, 2. We cannot analyze and economic issue unless we reduce its complexity (BOTH A AND B)

How do property rights affect externalities and market failure?

Externalities and market failure will result from the difficulty of enforcing property rights.

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

Economics

Xylo​ Inc., a manufacturer of domestic​ appliances, lowered the prices of its​ products, expecting an increase in demand and sales by at least 20 percent.​ However, it was observed that sales increased by only 8 percent. Which of the following, if true, can explain this outcome?

The government increased person income tax rates earlier this year

In general, the term "ceteris paribus" means:

all else equal

On the diagram to the right, a movement from A to B represents a:

change in quantity demanded

Microeconomics is the study of

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics is most likely to include the study of

inflation

Consumer and producer surplus measure the ________ benefit rather than the ______ benefit.

net, total

Consider the demand for large homes illustrated in the figure to the right. What demographic change would likely result in the demand curve for large homes shifting to the right? The demand curve for large homes would likely shift to the right if the

portion of the population that is elder decreases

Equity is

the fair distribution of economic benefits

Suppose electricity generate a negative externality in production. If so, then

the marginal social cost of electricity is greater than the marginal private cost.

In the diagram to the right, point G indicates an

unattainable result

Which of the following events would cause the supply curve to decrease from S1 to S2?

An increase in the price of inputs

Examining the costs and benefits of approving the sale of a new prescription drug is most likely an issue in ____________.

Microeconomics

A _____________ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Mixed

A perfectly competitive market is a market that meets the conditions of

(1) many buyers and sellers, (2) all firms selling identical products and, (3) no barriers to new firms entering the market.

A free market exists

1. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

A production possibilities frontier (PPF) is

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Market price is determined by

both supply and demand

The production responsibilities frontiers depicted in the diagram to the right illustrate

both the labor force and capital stock increasing

The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource limitations, the extent to which security is enhanced will most likely be determined by

society's willingness to forego other goods and services, both public and private.

Opportunity cost is

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

Prepping for a next-day exam over the course of an evening (and possibly into the week hours of the test day) poses increasing costs since

the longer you choose to study will result in an increase in the number and value of foregone activities.

In a free market, the actions people take are largely determined by

the motivation of financial reward.

Macroeconomics is

the study of the economy as a whole, included topics such as inflation, unemployment, and economic growth.

According to the law of demand

there is an inverse relationship between price and quantity demanded

Economics is a social science because

1. it is based on studying the actions of individuals, it applies the scientific method to the study of the interactions among individuals, aand it considers human behavior-particularly decision-making behavior (ALL OF THE ABOVE)

According to the law of supply

1. there is a positive relationship between price and quantity supplied and as the price of a product increases, firms will supply more of it to the market (A and C).

Which of the following would cause a shift in the demand curve from point A to point B?

An increase in the price of a substitute good, a decrease in income (inferior good), and an increase in income (normal good). All of the above

Trade-offs force society to answer questions such as what goods and services will be​ produced, how will the goods and services be​ produced, and who will receive the goods and services produced. Which of the following countries has an economy where households and firms make these​ decisions?

Canada

A(n) ___________ is someone who operates a business, bringing together the factors of production-labor, capital, and natural resources-to produce goods and services.

Entrepreneur

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating on its PPF?

Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety.

Two key groups participate in markets. A _________ consists of all individuals in a home. ___________ are suppliers of goods and services. We can use a simple economic model called the _________________ to see how participants in markets are linked.

Household, firms, and circular-flow diagram

Which of the following covers the study of topics such as inflation or unemployment?

Macroeconomics

As part of their budget tightening process, many states are cutting aid to colleges and universities, with students being asked to pick up a bigger part of the escalating tab of higher education. Which of the following would do the most to enable you to cope with those higher expenses without impairing your process toward a degree?

Reducing your consumption of goods and services not essential to your education.

Suppose the equilibrium price and equilibrium quantity of gold both increase. Which of the following would produce such a change?

The market demand curve for gold could have increased

A black market is

a market in which buying and selling take place at prices that violate government price regulations

When the government imposes price floors or price ceilings,

some people win, some people lose, and there is a loss of economic efficiency

The production possibilities frontiers depicted in the diagram to the right illustrate

technological advances in the tank industry

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn $200,000 next year playing for a minor league baseball team, $100,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year. The opportunity cost of the student returning to college next year is

$200,000

A hypothesis in an economic model is:

1. 1. Tested before it can be accepted (or not rejected), 2. A statement that may be either correct or incorrect about an economic variable, 3. Usually about a causal relationship (ALL OF THE ABOVE)

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

1. 1. What goods and services will be produced? 2. How will the goods and services be produced? 3. Who will receive the goods and services produced?

The figure to the right illustrates the trade-offs facing Ford Motor Company. The line in the graph is Ford's production possibilities frontier. If Ford uses al its resources to produce trucks, how many can it produce? Suppose Ford is currently building 6 thousand cars per day. To build an additional 1 thousand cars, how many fewer trucks can be built? According to the graph, building 3 thousand cars per day and 4 thousand trucks per day is

1. 8 thousand trucks per day 2. 1 thousand fewer trucks per day 3. Technically inefficient

From the PPF's shown above it can be determined that the opportunity cost of oil is lower in country ________. Given the comparative opportunity costs as revealed by the PPF's shown above the comparative advantage for country B lies in __________.

1. A 2. corn

Jonathan Baker is a market analyst. He works at a firm that is one of the few producers of good X. Jonathan formulates a hypothesis that an increase in advertising will increase the demand for this​ firm's products by attracting new customers. Which of the following, if true, would suggest that Jonathan's hypothesis will hold?

1. Even brand-loyal consumers can be convinced to change their preferences.

Which of the following are examples of intellectual property? (Check all that apply) The government seeks to protect intellectual property rights by granting

1. Ideas for new products or new production techniques, book and films, and software. 2. patents and copyrights.

Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below. Which country has an absolute advantage in producing tacos? 1. Which country has a comparative advantage in producing tacos?

1. The United States 2. Mexico

Consider the market for Hewlett-Packard (HP) printers, depicted in the figure to the right, where the supply of HP printers has increased from S1 to S2. What would cause the supply curve for HP printers to shift to the right?

A positive technological change and a decrease in the price of a substitute in production (A and B).

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $12​, a second lawn for $19​, and a third lawn for $22. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $31to have her lawn​ mowed, Mr. Wilson would be willing to pay $26​, and Ms. Smith would be willing to pay $22. If Tim offers to mow lawns for $22 each, what will be his producer surplus? (answer) Consider Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

A. $13 B. $13

Society 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 ___________ economy in which the decisions of households and firms interacting in markets allocate economic resources.

Central planned and market

Choco Dream is a firm that produces both dark chocolates as well as liquor chocolates. During a given​ month, the firm uses its resources to produce both varieties.​ Initially, the firm produced​ 5,000 bars of dark chocolates and​ 4,000 bars of liquor chocolates in a month. In order to increase production of the latter to​ 4,500, they had to reduce production of dark chocolates by 800 bars. When demand for liquor chocolates increased​further, Choco Dream produced​ 5,000 bars of liquor chocolates and​ 3,200 bars of dark chocolates per month. Which of the following inferences can be drawn from the given information?

Choco Dream faces increasing marginal opportunity cost in the production of liquor chocolates.

Economic surplus in a market is the sum of ________ surplus and _________ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a __________ when the market is in __________.

Consumer; producer; maximum; equilibrium

_____________________ decide(s) what goods and services will be produced.

Consumers, firms, and government

In the diagram to the right, point A provides the __________, point B the ________, and point C the _________.

Equilibrium price, market equilibrium, and equilibrium quantity.

Terbia is a closed​ economy, which has been growing at a very slow pace over the last decade. In order to boost economic​ growth, the government removed trade barriers earlier this year and increased its spending on the economy. These moves were expected to generate employment and increase economic growth.​ However, unemployment did not decline as much as expected. Which of the following, if true, can explain this outcome?

Imported varieties of many goods were cheaper than the domestically produced varieties.

Harry Fletcher is a market analyst at an automobile firm. He formed a hypothesis that an increase in advertising would increase demand for the​ firm's cars. The ad campaign ran for a period of six months. ​ However, the results were not as positive as Harry had anticipated. Which of the following, if true, can explain the outcome?

Interest rates increased substantially to change their preferences

Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result the number of healthcare provides also increases, but by only 25%. What is the effect on the price of healthcare services over time?

It increases because demand increased by more than supply

Which of the following is not a step economist follow when developed?

Make value judgements to be proven or disproven.

A price ceiling is a legally determined ___________ price that sellers may charge. A price floor is a legally determined _________ price that sellers may receive.

Maximum, minimum

The economy of East Paragon has been experiencing deflation for the last few​ months, with prices of goods and services declining. Because firms are charging lower​ prices, they expected higher sales. ​However, consumption spending did not increase​ much, resulting in substantial losses for these firms. Which of the following, if true, explains why consumers did not increase consumption in spite of falling prices?

Most people were expecting prices to decline further

Suppose an analyst estimates the gains to workers from minimum wage laws. This is an example of ______________.

Positive analysis

_______________ is concerned with what is, and _______________ is concerned with what ought to be. Economics is about ______________, which measures the costs and benefits of different course of action.

Positive analysis, normative analysis, and positive analysis

_____________ occurs when a good or service is produced at the lowest possible cost. _____________ occurs when production is an accordance with consumer preferences.

Productivity efficiency and allocative efficiency but not necessarily equity

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating at a point inside its PPF?

The firm believes in maintaining a certain amount of excess capacity to meet unexpected changes in demand.

According to the law of demand, there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. Why?

When the price of a good increases, consumers purchasing power decreases, and they cannot buy as much of the good as they did prior to the price change

Economic efficiency is

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

The primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

A market is a group of ___________ of a good or service and the institution or arrangement by which they come together to trade

buyers and sellers

On the diagram to the right, a movement from B to C represents

change in supply.

The basis for trade is _________ advantage

comparative

Which of the follow is not an example of extremity? An extremity is not created by

consuming a Coke

Suppose the price of a substitute to LCD television falls. What effect will this have on the market equilibrium for LCD TVs? The equilibrium price of LCD TVs will

decrease, and the equilibrium quantity will decrease

After World War II in 1945, the United States experienced a "baby boom" as birthrates rose and remained high through the early 1960's. In 2011, the first members of the baby boom generation became older than 65. What effect will this have on the market for hospital facilities? As the first baby boomers become older than 65, the

demand curve hospital facilities will shift to the right.

Suppose, in an effort to prevent the population from​ declining, Italy begins offering new mothers extended periods of paid family leave from work​ and, consequently, the birthrate per woman increases. If​ so, then this could best be characterized as an example of people responding to

economic incentives

In economics terminology, the inputs used to produce output are referred to as

factors of production

Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is

false; decreases in price affect the quantity demanded, not demand.

The oil supply curve would shift to the right if

future oil prices were expected to be lower.

If country ABC can produce a unit of good 1 with fewer resources than can country XYZ, it is correct to say that country ABC

has an absolute advantage in producing good 1

Suppose an increasing number of school districts across the country find themselves with too few teachers at a time of rising enrollments and calls for improved outcomes in terms of student performance. A​ market-based remedy for this emerging mismatch between the availability of teachers and school​ districts' needs would likely emphasize

higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on non-traditional instruction methods.

In the United States, who receives the goods and services produced depends largely on ________________.

how income is distributed

In the circular-flow diagram showing how a market system works,

income flows to households through factor markets.

Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to​ market) another barrel of oil is $79.20 and the marginal benefit is $79.60. If one more barrel of oil is produced and​ consumed, how will economic surplus​ change? Economic surplus will

increase by $0.40

On the diagram to the right, movement along the curve from points A to B to C illustrates

increasing marginal opportunity costs

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 few 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

"Rent controls, government farm programs, and other price ceilings and price floors are bad" This is an example of a

normative statement. The statement is concerned with what should be.

When economists develop models designed to explain the choices people​ make, they generally assume that

people are rational

In economics, the term capital refers to

physical capital, such as machinery, that is used to produce other goods.

The Scottish philosopher Adam Smith argued in 1776 that

prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

The primary difference between product markets and factor markets is that

product markets are markets for goods, while factor markets are markets for factors of production-labor, capital, natural resources, and entrepreneurial ability.

Japan has a market economy. As such, Japan's economy (relative to centrally planned economies) tend to result in

productive efficiency and allocative efficiency but not necessarily equity

How do externalities in the production of college educations result in market failure? Because of externalities, the market for college educators will

provide insufficient college educators

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

A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for​ short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of​ "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $5,000 and the marginal cost is $8,000 per bed, then the corporation __________ offer additional beds

should not

The distinction between substitutes and complements is

substitute goods are used for the same purposes while complementary goods are used together

One of the great benefits of trade is

that it makes it possible for society to become better off by increasing its consumption

A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that

the income lost while away from music will likely exceed the savings realized by doing the work himself, thus, he should hire professionals to do the restoration work.

How do externalities affect markets? If a positive externality in consumption is present in a market, then

the private benefit from consumption will be different than the social benefit from consumption

Property rights are

the right individuals or firms have to exclusion use of their property, including the right to buy or sell it.

A number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that

the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value.

The distinction between a normal and an inferior good is

when income increases, demand for a normal good increase while demand for an inferior good fall