Econ 2305 UTA Macroeconomics Test #1

Categorize each of the following issues as either a microeconomic issue or a macroeconomic issue.

Macro: National unemployment, National government's budget deficit, rate of growth of the money supply.

Micro: Decision of a worker to work overtime or not, family having a baby, allocation of study time.

The economic way of thinking will

allow you to make better decisions.

Economics is

the study of how limited resources are allocated to satisfy unlimited wants

What is the relationship between wants and resources

Resources are used to produce things that satisfy people's wants.

Microeconomics focuses on ...

decisions made by the individual households and firms

The impact of the national debt on the​ economy's unemployment is an example of

macroeconomics analysis.

Economics is best defined as the study of

How people allocate limited resources to satisfy unlimited wants

Which of the following would be a topic of study in macroeconomics

The output of the United States

Economics is the study of how people allocate their​ ________ resources in an attempt to satisfy their​ ________ wants. As​ such, economics is the study of how people make choices.

limited; unlimited

The three fundamental economic questions that a nation addresses in order to allocate​ society's scarce resources include all of the following ​except:

How will the item be produced?

Why will the item be produced?

What and how much will be produced?

For whom will the items be produced?

Why will the items be produced?

a.) The economic system in which individuals and families own all of the scarce resources used in​ production, decide how and what to​ produce, and how many products to​ produce, is best described as a price system.

b.) The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as

a.) True

b.) a command and control system

The three basic economic questions are​ __________ will be​ produced, __________ will items be​ produced, and for​ __________ will items be​ produced?

what and how much; how; whom

Economists assume that an individual acts as if motivated by

self-interest

The ceteris paribus assumption means

other things equal

Which one of the following is a positive​ statement?

The Fed has cut the key interest rate several times this year

A politician states​ "taxes should be raised to provide more spending on school lunch​ programs." This is

normative economic statement

Positive economic statements​ ________, and normative economic statements​ ________.

are concerned with​ "what is"; are concerned with​ "what ought to​ be"

State whether each of the following functions implies a positive or negative relationship between x and y.

a.) y = -17x

b.) y = -2+14x

c.) y = x-4

a.) negative

b.) positive

c.) positive

What kind of relationship is shown in the graph?

A direct relationship

Scarcity

results from unlimited wants coupled with limited resources

The existence of scarcity requires

that people must make choices and face trade-offs in using their resources

Any activity that results in the conversion of resources into products that can be used in consumption is called

production

Factors of production include

land, labor, physical capital, human capital, entrepreneurship

Economic goods are

goods that are scarce

Which of the following is not a factor of production

money

Which of the following is not generally considered to be a resource​ (factor of​ production)?

A share of Kodak stock

Scarcity is the same as a shortage.

False

If you receive a free ticket to a​ concert, what, if​ anything, is your opportunity cost of attending the​ concert?

If miserable weather on the night of the concert requires you to leave much earlier for the concert hall and greatly extends the time it takes to get home​ afterward, the opportunity cost of attending the concert

The next best activity that can't be done while attending the concert

increases

Opportunity cost

is the value of the next best alternative as a result of choosing some given alternative.

A production possibilities curve represents

all possible combinations of output that could be produced assuming fixed productive resources and their efficient use.

A point inside the PPC means that

resources are not being fully utilized due to unemployment or inefficiency.

Which of the following statements about production possibilities curves is not​ true?

a.) A production possibilities curve illustrates the concept of scarcity.

b.) A production possibilities curve illustrates the concept of opportunity cost.

c.) A linear production possibility curve illustrates the concept of increasing opportunity costs.

d.) A linear production possibilities curve illustrates the concept of efficiency.

A linear production possibility curve illustrates the concept of increasing opportunity costs.

A production possibilities curve that is bowed outward​ (from the​ origin) represents the concept that

production of additional units of one good requires that increasing quantities of the other good be given up.

All of the following are assumptions underlying the production possibilities curve except

technology is assumed to be continuously improving

During the time period assumed by a production possibilities​ curve, it is​ ________ to be at a point outside the curve and​ ________ to be at a point beneath the curve.

impossible; possible

Whenever a society forgoes current consumption in order to invest in capital​ goods,

the more the society can consume in the future

Other things remaining​ equal, the law of demand says that higher prices will lead to a

smaller quantity demanded and lower prices to a larger quantity demanded.

Which of the following is consistent with the law of​ demand?

A reduction of the price of salt led to a 5 percent increase in the quantity of salt purchased

A demand schedule shows

various quantities of a good or service demanded at various prices.

According to the law of​ demand, the quantity demanded of any commodity is​ ________ related to its​ price, other things being equal.

inversely

All of the following pairs of goods are substitutes except

All of the following pairs of goods are complements except

we observe the price of bacon increases and the demand for eggs decreases. The price of one good and the quantity demanded of a related good move in opposite directions. These two goods are not substitutes. There are related goods.

we observe the price of coffee decreases and the demand for tea decreases. The price of one good and the quantity demanded of a related good move in the same direction. These two goods are not complements.

Which of the following describes an inferior​ good?

When consumer income increases, the demand for eggs decreases

According to the example in the​ book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grapefruit because

According to the same example in the​ book, medical research has shown that grapefruit juice can reduce the effectiveness of certain medications.​ However, there is also evidence that grapefruit consumption can lower cholesterol in young people. The net effect on demand from these two findings

people will buy less grapefruits because their tastes and preferences have changed.

cannot be determined because they have opposite effects on demand.

Which of the following will cause the demand curve to​ shift?

a change in consumer income. Many variables other than price can influence market demand. These five are the most important: Income, price of related goods, tastes, population and demographics, and expected future prices

When there is a normal good, an increase in consumer income will result in the ...

demand curve shifting to the right. An increase in consumer income for a normal good would shift the demand curve to the right.

An increase in the price of a substitute good Y will lead to

an outward shift in the demand for good X

Which of the following would cause a decrease in the demand for pork?

A decrease in the price of sausages, a substitute for pork

A rise in demand is represented by a leftward shift in the demand​ curve, and a fall in demand is represented by a rightward shift in the demand curve.

For​ substitutes, a change in the price of a product will cause a change in demand in the​ ________ direction for the other good. For​ complements, a change in the price of a product will cause a change in demand in the​ ________ direction for the other good.

False

same; opposite

A change in a​ good's own price leads to a change in quantity demanded for any given demand curve.

Whenever there is a change in a ceteris paribus condition there will be a change in​ ________, which is represented by a​ ________.

True

demand; shift in the entire demand curve

According to the​ text, firms encounter rising costs when they attempt to produce more in the same time period. As a​ consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is

direct​ (or positive) and is called the law of supply.

Which of the following is consistent with the law of​ supply?

An increase in the market price of oranges causes an increase in the production of oranges.

The law of supply says that the market price and the quantity supplied are directly​ related, that​ is, they move in the same direction.

The law of supply states that there is a ____ relationship between the price and ______

Thus, as the price decreases

According to the law of supply, as the price of good decreases, it causes...

According to the law of supply, as the price of a good increases, it causes...

positive; the quantity supplied

the quantity produced by firms decreases

a movement

downward

along the supply curve.

a movement upward

Which of the following is an implication of law of supply?

a.) Changes in the price of a good leads to a shift in the supply curve.

b.) Individuals will purchase fewer units at a higher price and more units at a lower price.

c.) Increases in money prices will lead to an increase in supply while increases in relative prices will lead to a decrease in supply.

d.) Producers will offer more units at a higher price and fewer units at a lower price.

Producers will offer more units at a higher price and fewer units at a lower price.

The law of supply then implies that a movement along the supply curve occurs due to a change in market price.

According to the law of supply, the quantity supplied of any commodity is ______ related to its price, other things being equal.

Directly

Consider the market for economics textbooks. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied.

a.) The market price of editorial services increases. This will cause​ a(n)

b.) The market price of economics textbooks increases. This will cause​ a(n)

c.) The number of publishers of economics textbooks increases. This will cause​ a(n)

d.) Publishers expect that the market price of economics textbooks will increase next month. This will cause​ a(n)

a.) decrease in supply

b.) increase in quantity supplied

c.) increase in supply

d.) decrease in supply

Which of the following will cause an outward​ (rightward) shift in​ supply?

A technological improvement

All of the following will decrease the supply of bus trips except

A technological advancement making bus trips more efficient will reduce costs. This therefore increases the supply curve and shifts it to the right.

Suppose that paper is necessary to produce books. If the price of paper rises​, the supply curve of

books shifts to the left

A rightward shift in the supply curve for a good may be caused by any of the following except

an increase in price

A decrease in the number of pizza producers or an increase in the cost of mozzarella cheese used to make pizza will shift the

supply curve for pizza to move inwards.

An increase in the cost of production will shift the supply curve leftward as potential profits for the firm fall. A decrease in the number of suppliers will also reduce the supply of pizza and shift the supply curve for pizza leftward. The opposite is true for a decrease in the cost of production and an increase in supply.

Which of the following would cause an increase in the supply of pork

a decrease in the price of inputs to pork production

If the number of firms in an industry​ decreases, the supply curve will shift to the right.

A change in which of the following will result in a shift of the supply curve?

False

cost of inputs used to produce the product, technology and productivity, taxes and subsidies.

A change in a​ good's own price leads to a change in​ supply, which shifts the supply curve.

Whenever there is a change in a ceteris paribus condition there will be a change in​ ________, which is represented by a​ ________.

False

supply; shift in the entire supply curve.

If the demand and supply curves increase​ (shift outward) by identical proportions then

What if the increase in demand were larger than the increase in supply?

What if the increase in demand were smaller than the increase in supply

equilibrium price stays the same and quantity rises.

The equilibrium price and quantity increases

Equilibrium price falls and quantity rises.

At market equilibrium price,

a quantity demanded equals quantity supplied.

Shortages and scarcity are the same thing

A shortage occurs when quantity demanded is​ ________ than quantity supplied at a price​ ________ the market clearing price.

False

greater; below

A surplus occurs when quantity supplied is​ ________ than quantity demanded at a price​ ________ the market clearing price.

greater; above

In a price​ system, changes in prices

signal to consumers that some goods are relatively more or less scarce.

Buyers and sellers receive information about what should be bought and what should be produced

from prices in a market system

Voluntary exchange

makes both parties to a trade better off

There are simultaneous changes in the demand for and supply of​ global-positioning-system (GPS)​ devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these​ outcomes?

Demand decreases and supply increases.

There are simultaneous changes in the demand for and supply of tablet​ devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these​ outcomes?

Demand decreases and supply decreases

When supply increases and the​ (downward-sloping) demand curve remains in the same​ position,

price falls and equilibrium quantity rises.

Other things remaining​ equal, a decrease in the world oil supply like those that occurred in​ 1973-74 and 1979 would

increase the price of airline travel and decrease its equilibrium quantity.

What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external​ shock?

A new equilibrium will be achieved over some period of time.

When both supply and demand curves​ change, the outcome is definite for both equilibrium price and equilibrium quantity.

When both supply and demand​ decrease, the equilibrium price​ ________ and the equilibrium quantity​ ________.

False

change is uncertain; decreases

What is the economic effect of price​ ceilings?

An effective price ceiling will lead to a shortage

A price ceiling is

a​ government-imposed maximum price that may be charged for a good or​ service, which can lead to shortages

What is the economic effect of price​ floors?

Surpluses

The minimum wage is an example of

a price floor

Opponents of minimum wage legislation argue that higher minimum wages serve to

increase unemployment, particularly among unskilled minority teenagers

The labor force is equal to the number of employed plus the number of unemployed.

True

The unemployment rate is calculated as

((#of unemployed)/(# people in the labor force))*100

Individuals who have stopped looking for a job because they are convinced they will not find a suitable one are classified as unemployed.

According to the Bureau of Labor​ Statistics, an unemployed individual whose employment was involuntarily terminated is classified as a

False

job loser

Internet job​ sites, like​ Monster.com, have led potential employees to find jobs via the internet almost instantly. This has caused

a fall in frictional unemployment

The type of unemployment that rises as the economy goes into a recession is called

cyclical unemployment. unemployment associated with changes in business conditions —recessions and booms.

By providing information and reducing the costs of job​ search, the​ Internet's impact on the job market is to reduce

frictional unemployment. occurs because workers must search for appropriate job​ offers, it follows that anything that enhances the flow of information will shorten the search process and reduce this type of unemployment.

The economy of Finlandia is at full employment when

there is some unemployment due to friction in the labor market, but there is no cyclical unemployment

Consider an economy where the natural rate of unemployment is equal to 4​%. If the actual unemployment rate is equal to 6​%, then

the cyclical unemployment rate is 2%

Full employment means

there is a level of unemployment consistent with​ "normal" frictions in the labor market.

Mandy had been temporarily laid off during a recession, but expects to be rehired when business picks up.

Which type of unemployment is this?

cyclical

The natural rate of unemployment is best defined as

The rate of unemployment after all workers and employers have fully adjusted to all changes in the economy.

Unemployment due to the fact that workers must search for appropriate job offers is called frictional unemployment.

True

Structural unemployment is related to the movement of workers from​ low-paying to​ high-paying jobs.

False

Cyclical unemployment results from business recessions.

True

When the economy is at full​ employment, the unemployment rate is zero.

The natural rate of unemployment includes

False

Frictional and structural unemployment

____________ unemployment occurs because of transaction costs in the labor market. For​ example, workers do not have full information about vacancies and must search for jobs.

Frictional

_______unemployment occurs when there is a poor match of​ workers' skills and abilities with available​ jobs, perhaps because workers lack appropriate training or government labor rules reduce​ firms' willingness to hire

Structural

The levels of frictional and structural unemployment are used in part to determine our​ (somewhat arbitrary) measurement of the __________________ rate of unemployment.

natural

The cost of a​ nation's market basket in the base year is ​$1,110​, and the current​ year's price index equals 160.

What is the cost of the market basket in the current​ year?

1110 x (160/100) = 1760