ECON-2301: Midterm Review (Units 1-5) NO GRAPHS

The construction of a production possibilities curve assumes:

technology is fixed.

The negative slope of the production possibilities curve is a graphical way of indicating that:

to produce more of one product we must do with less of another.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:

rational self-interest, because he attempting to increase his own income by identifying and satisfying

someone else's wants.

The law of increasing opportunity costs states that:

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

College-age athletes who drop out of college to play professional sports

are well aware that their opportunity cost of attending college is very high.

Opportunity cost is best defined as:

the amount of one product that must be given up to produce one more unit of another product.

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?

Advancements in technology that make labor more productive.

The point on the production possibilities curve that is most desirable can be found by:

comparing marginal benefits and marginal costs.

A person should consume more of something when its marginal:

benefit exceeds its marginal cost.

Which of the following is an economic explanation for why most college-aged movie stars do not attend college?

the opportunity cost in terms of reduced income is too great

A production possibilities frontier can shift outward if

there is a technological improvement.

In response to the terrorist attacks of September 11, 2001, the government decided to allocate more resources toward defense goods. The government's decision reflects their assessment that:

the marginal benefits of additional defense goods outweighed the marginal cost.

A country can CONSUME some combination of goods outside its production possibilities curve by:

specializing and engaging in international trade.

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

opportunity costs.

The concept of opportunity cost:

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

Consumers might leave a fast-food restaurant without being served because:

they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.

In drawing a production possibilities curve we hold constant:

both technology and resource supplies.

Which of the following most closely relates to the idea of opportunity costs?

tradeoffs

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

people face tradeoffs.

The law of increasing opportunity costs exists because:

resources are not equally efficient in producing various goods.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

The optimal point on a production possibilities curve is achieved where:

each good is produced at a level where marginal benefits equal marginal costs.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

The production possibilities curve shows:

the various combinations of two goods that can be produced when society employs all of its scarce resources.

An exception to the advice "go to college, stay in college, and earn a degree" occurs when:

the opportunity cost of attending college is extraordinarily high.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

concave to the origin.

A rational decision maker takes an action only if the

marginal benefit is greater than the marginal cost.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:

opportunity costs.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of

crystal to increase.

If toast and butter are complements, then which of the following would increase the demand for toast?

a decrease in the price of butter

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods.

In January, buyers of gold expect that the price of gold will fall by February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the left.

Price floors and price ceilings:

interfere with the rationing function of prices.

A movement along the demand curve for Aquafresh toothpaste is caused by

a change in the price of Aquafresh toothpaste.

A improvement in production technology will shift the

supply curve to the right.

Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year, and 3 million bottles at $3 in the next year. Based on this information we can conclude that the:

supply of salsa has increased.

An decrease in the price of oranges would lead to a(n)

a movement down and to the left along the supply curve for oranges.

A likely example of substitute goods for most people would be

apple juice and orange juice.

Several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea?

The demand for green tea curve shifts to the right because of a change in tastes and preferences in favor of green tea.

A surplus of a product will arise when price is:

above equilibrium with the result that quantity supplied exceeds quantity demanded.

If, at the current price, there is a shortage of a good, then

the price is below the equilibrium price.

Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2007, and sell 240 million pounds for $3 per pound in 2008. Based on this information we can conclude that the:

demand for coffee beans has increased.

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

A price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result,

- the quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price.

- the equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price.

- there is a surplus of blue jeans at the $30 price.

If mayonnaise and Miracle Whip are substitutes, then which of the following would increase the demand for Miracle Whip?

an increase in the price of mayonnaise

A decrease in the number of sellers in the market causes

the supply curve to shift to the left.

Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a

surplus to exist and the market price of chocolate-dipped strawberries to decrease.

Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

decrease.

A market supply curve shows how the total quantity supplied of a good varies as

price varies.

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are

normal goods.

If the price of SUVs increases, we would expect

the demand for gasoline to decrease.

Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $5 doll in six weeks. Funsters should

increase the supply of its doll now before the other doll hits the market.

Farmers can plant either corn or soybeans in their fields. Suppose that a new technology for converting corn into liquid fuel increases the demand for corn. Which of the following is most likely to occur?

The supply of soybeans will decrease.

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11%

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?

8%

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation is:

3 percent

Who would be included in the labor force?

Lisa, who is unhappy with her current job.

Which of the following is not correct?

The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.

A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is

counted as unemployed but should be counted as out of the labor force.

Nominal GDP will definitely increase when

prices increase and output increases.

In which of the following cases would purchasing power rise?

Nominal income rises by 2 percent, and the price level remains unchanged.

A binding minimal wage leads to

higher unemployment rate.

The natural rate of unemployment is:

the sum of frictional and structural unemployment.

Unanticipated inflation:

reduces the real burden of the public debt to the Federal government.

The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct?

The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

Adam is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Amanda lost her job working for Mercury Bicycles because many customers decided they prefer bicycles manufactured by Ultimate Bicycles instead. Who is frictionally unemployed?

both Adam and Amanda

Which of the following statement is correct?

In the national income accounts GDP can be measured as production, income, or expenditures.

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP.

Unemployment compensation is

not part of GDP because it is a transfer payment.

If the price level rose in three consecutive years from 100 to 120 to 140, then the inflation rate over those years would

decrease.

Social Security payments are

excluded from GDP because they do not reflect the economy's production.

Which of the following could cause nominal GDP to decrease, but real GDP to increase?

The price level falls and the quantity of final goods and services produced rises.

The unemployment rate is the:

percentage of the labor force that is unemployed.

Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

No, because real income may fall if prices increase more proportionately than the increase in nominal income.

Suppose there's an unanticipated increase in the rate of inflation. Which of the following is likely to be true?

Workers whose nominal wages are set at the beginning of the year are likely to suffer a decrease in real wages (purchasing power).

Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then

30 million are not in the labor force.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

the price level may change over time.

To be officially unemployed a person must:

be in the labor force.

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

Which of the following is included in GDP?

marijuana purchased legally in Colorado.

A lender need not be penalized by inflation if the:

lender correctly anticipates inflation and increases the nominal interest rate accordingly.

Suppose you lend $1,000 at an interest rate of 10 percent. If the expected real interest rate is 4 percent (based on your expected inflation), then the rate of inflation over the upcoming year that would be most beneficial to you (among the following choices) would be a rate of inflation

equal to 0%

If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise?

nominal GDP but not real GDP.

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as

$23.86 purchased in 1965.

Rachel cuts her sister's hair for free. When she cuts the hair of her customers in her shop, she charges $10. When is Rachel's haircutting included in GDP?

When she cuts her customers' hair, but not her sister's.

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?

Ellen's but not Sam's.

GDP is defined as the

market value of all final goods and services produced within a country in a given period of time.

Consider the following data (in billions of dollars) for an economy:

• Consumption 3,500

• Investment 800

• Government Spending 900

• Export 50

• Import 100

Gross domestic product (in billions of dollars) for this economy equals:

$5,150

Suppose that in some state the adult population is 3 million, the labor force participation rate is 80%, and 240,000 people are unemployed. What is the unemployment rate?

10%

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's purchasing power will:

rise by about 15 percent.

Which of the following people are NOT included in the labor force?

Lizzie who is a full time student

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

160 in Washington, D.C. and 72 in Austin, TX