Macroeconomics Exam 1

Market demand is derived from ____

Fixing the price and adding up the quantities that each buyer demands

What is the difference between marginal and average values

Marginal values show the additional benefit or cost from consuming an addition unit of a good, while values are the evening or cost per unit of a good

A group of economic agents who are trading a good or service would define a ___. Price takers exists throughout ___ markets

Market. Competitive

Which of the following is NOT a characteristic of a market?

Markets are physical locations where trading occurs

A policy such as pollution regulations on steel plants would be studied under ___. Since it deals with ____

Microeconomics. A small part of the overall economy

The demand curve for anti-venom serum is ___

Near vertical, since even if the price rises bite victims will be willing to buy the same quantity

Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop united airlines flight is $400, and the net benefit from the same trip flying on one-stop American Airlines flight is $200

Optimization in levels, since she is comparing the net benefits between alternatives

Which of the following examples do you provide as a normative question

Should welfare be repealed?

What is meant by randomization in the context of an economic experiment

Subjects are assigned by chance, rather than by choice, to a group

Comparing a set of feasible alternatives and picking the best one is an optimization process called?

Cost-benefit analysis

If people expect the price of SUVS to decrease in the future, then the demand for the TOYOTA RAV4 SUV Would ___

Decrease (shift left)

Empiricism

Describes a situation where economists use data to analyze what is happening in the world

During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?

No, the model is a simplified representation of reality

The ethical implications of a hotly debated government policy would best be considered a

Normative question, since it deals with a subjective issue based on personal preferences

Which of the following is the best example of causation (versus correlation)

Oil prices go up an gasoline prices go up.

We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in ___

Only the price of a good

Holding all else constant, if the number of cell phone manufactures suddenly decreases due to increased regulations then?

Supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease

Still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ____ with ____

Testing its predictions. Empirical data

Which of the following is NOT one of the 4 major factors that shifts the supply curve when it changes

The income of consumers

How does sample size affect the validity of an empirical argument

The larger the sample the better

Two characteristics of a good economic question are:

1. It is important to individuals or society 2. It can be answered

What is meant by comparative static's? Explain with an example

A change in an outcome, such as consumption, that results from a change in a factor, such as the price

Causation occurs when there is

A logical cause-and-effect relationship

For a trade to take a place, a buyers willingness to pay must be ___

A. Higher than the sellers willingness to accept B. Equal to the sellers willingness to accept C. Lower than the sellers willingness to accept D. A and B only E. All of the above D. A and B only

Which of the following is NOT an item studied under microeconomics

A. Prices of individual goods B. Aggregate issues C. Individual preferences D. Cigarette taxes B. Aggregate issues

Which of the following would NOT be considered a market by an economist?

A. Your corner gas station B. A dating website C. An online auction site such as eBay D. All of the above D. All of the above

When optimizing for total value, opportunity cost must be ___ total cost. Assuming ___ benefits, the list cost option is the optimal choice

Added to. equal

The definition of economics states that it is the study of how

Agents choose to allocate scarce resources and the impact of those choices on society

Policy decisions made by the government are analyzed by

Both microeconomics and macroeconomics

In a perfectly competitor market, sellers ____ and buyers ___

Cannot charge more than the market price; cannot pay less than the market price

The concept of diminishing marginal benefit means that ___

Each additional unit consumed is worth less to you than the previous one

The concept of diminishing ____ for goods that you like a lot

Hold true

A drought in the grape growing regions of the country increases the cost of producing jelly. At the same time, we see the price of Pb falls. Suppose that after both of these events the consumption of jelly is left unchanged. In this situation, the law of Demand ___

Holds since the demand curve for both jelly and PB are downward-sloping; it is their shifts that are determining the impact of the quantity consumed

Which of the following do you provide as a positive question?

How much is the national debt?

Which of the following statements regarding the principle of optimization is true

It takes into account and evaluates multiple trade-offs It is the unifying principle that connects various seemingly unrelated decisions

In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will ___

Lose all or almost all of its customers

Positive questions ask ___ and normative questions ask ____

What is or what will be. What ought to be.

Which of the following is least likely to be a question or study of economic concern?

What is the motivation of the Red Cross?

The lowest price that a seller is willing to receive to sell and extra unit of a good is called ____, while the highest price that a buyer is willing to pay for an extra unit of a good is called ___

Willingness to accept. Willingness to pay.

The cause, or independent variable should be plotted on the ___ and the effect, of dependent variable, should be plotted on the ___

X-axis, Y-axis

Microeconomics studies ____, while macroeconomics studies ____

A small piece of the overall economy; the economy as a whole

What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?

All variables that can affect the demand for the good are held constant

Identify the cause and effect in the following examples: Lower infant mortality is ____ and an improvement in nutrition is ___ A surge in cocoa prices is ___ and a pretty attack on the cocoa crop is ___

An effect, the cause. An effect, the cause

To say that economist use the scientific method means that they are using

An ongoing process to develop models of the world and then test and evaluate those models

When making your decision about which activity to choose, you should consider the monetary cost ___ the opportunity cost of the activities. The goal is to choose the option that offers the greatest ___ benefit

As Well As. Net

Suppose the uni. Is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient?

Auctioning the rooms to the highest bidders

Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, it's

Both normative and positive

Economists mostly use optimization in differences, as opposed to optimization in levels because

Comparing different features of alternatives is intuitive

If people began to believe that SUVS were causing global warming, then the demand for the Toyota RAV4 SUV would ____

Decrease(shift left)

If the government sets a minimum wage for seasonal workers, then the supply curve for sparkling wine would ___

Decrease(shift left)

A price ceiling set below the natural equilibrium price would cause the quantity __ to exceed quantity ___

Demanded. Supplied

Equilibrium

Describes a situation where no one would benefit from changing his or her behavior

Optimization

Describes a situation where people weigh costs and benefits when making a decision

You could estimate the average value that parents place on a one-point increase in test scores by?

Dividing the difference in the prices of similar homes between districts by the difference in test scores between districts

Suppose your New Years resolution is to get back in shape. You are considering various ways of doing this: how would you evaluate these options and choose an optimal one?

Do a cost benefit analysis to compare alternatives

The price of anti-venom serum, sold to those with snake bites, increased from $45 to $52, but consumption has still remained the same. In this situation, the law of Demand____

Does NOT hold true, since the product sold is required for survival, so increasing the price did not effect consumption

Which of the following is NOT an example of causation

Driving without car insurance will lead to getting into an accident

Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the appropriate reply to this criticism?

Economic models are meant to be approximations that predict what happens in most circumstances

For a marketer to be in equilibrium 3 conditions must hold. The amount produced by sellers must be ___ the amount purchased by buyers The costs of making a product must be ___ the final price at which the product sells Buyers must place a value on the uses of the product that is ____ the cost of buying the product

Equal to. Less than. Greater than

An example of causation is ___

If you work fewer hours, you will earn less money

If opportunity cost where to suddenly increase, total cost would

Increase and net benefit would decrease

If an increase in the immigration of unskilled labor leads to a fall in the wages of wine— grape pickers, then supply curve for sparkling wine would

Increase(shift right)

As a firm produced more of a good; the fillet of producing each additional unit ____. This implied that the marginal cost of producing a good ____ as you make more of that good The supply curve represents____

Increases. Increases The minimum price sellers are willing to accept to sell an extra unit of a good

Which of the following is true regarding the concept of causation

It describes how one event can bring about change in another

Are all markets perfectly competitive?

No, there are other market types where firms have considerable power to control the price

Does the shape of the market demand curve differ from the shape of an individual demand curve?

No, they both tend to be downward-sloping curves

John is attempting to decide on a movie. He determined that the new Batman movie provided him with $5 more a better benefit than the new Spiderman movie

Optimization in differences, since he is calculating the change in net benefits between alternatives

Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available spaces had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam

Optimization in differences, since she is calculating the changes in net benefits between alternatives

Regan determines that the net benign of taking the combination of 2 lecture courses and an online lecture course was $100. The same 3 courses online gave her a net benefit of $80, and all 3 in a lecture-based formats gave her a benefit of $90

Optimization in levels, since she is comparing the net benefits between alternatives

More ___ and ___ crimes rates is likely to be ___ More ___ and ___ employment is likely to be causation The length of women's skirts and stock market performance is likely to be ___

Police officers, lower, causation Economic growth, higher, causation Correlation

The statement that the US saw the unemployment rate peak peak at 10% in 2009 is a ___ statement since it described what people ___. The statement that the US is too aggressive in increasing the money supply is a ___ statement since it describes what people ___

Positive, actually do, normative, ought to do

Aggregation consists of fixing ____ and adding up the ____ by each buyer

Price of the good. Quantity demanded

If instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____

Quantity demanded would exceed the quantity supplied, resulting in a shortage

The law of demand states that as the prices of a good increases, Ceteris paribus, the ___ decreases. This can be shown graphically with _____ demand curve or numerically in a table using a ____ The relationship that exists between these 2 variables can be described as ____

Quantity demanded. A downward- sloping. Demand schedule. Negatively related

The competitive equilibrium price equates

Quantity supplied to quantity demanded

The Law of Supply states that as the price of a good increases, ceteris paribus, the ____ of that good increases. This can be shown graphically with ___ supply curve or numerically in a table using a __ The relationship that exists between these 2 variables can be described as ____

Quantity supplied. An upward-sloping. Supply schedule. Positively related

When one of the 4 major factors changes, causing an increase in supply, the supply curve shifts ___

Rightward

When one of the 5 major factors, changed causing an increase in demand, the demand curve shifts ___

Rightward

The law of supply states that, in most cases, the quantity supplied of a good ____ when the price of the good rises. This means we would expect a typical supply curve to be ____

Rises; upward-Sloping

Optimization is the process

That households make

What does it mean to say that we are running out of "cheap oil" What does this imply for the price of oil in the future?

That oil reserves are becoming more expensive to find and extract over time. The supply of oil will decrease, which will lead to higher prices in the future

How would a decrease in demand affect the equilibrium price in a market?

The equilibrium price decreases

How would the equilibrium price in a market be affected if there were a large decrease in demand and a small decrease in supply

The equilibrium price decreases

How would the equilibrium price in a market be affected if there were a large increase in demand and a small increase in supply?

The equilibrium price increases

Which of the following is NOT one of the 5 major factors that shifts the demand curve when it changes?

The price of the good itself

Which of the following statements regarding economic questions is not correct

The questions must have implication on individuals' choices and their budget

How do economists distinguish between models that work and those that don't

They test models against real-world data

In which of the following situations is optimization a good description of behavior?

Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable

Optimization in levels maximizes ___, while optimization in differences analyzes __

Total net benefits of alternatives;the change in net benefits

Your budget constraint for entertainment illustrates the concept of ___, since as you increase your purchases of one item, you ____

Trade-offs, must decrease your purchases of the other item

Which of the following questions is not an example of an issue a researcher could study to contribute to the welfare of society

What combination of colors can one use to paint his bedroom wall?