Contemporary Economic Issues (Final Exam)

Economics is the social science that

studies how people make decisions in the face of scarcity and the resulting impact of such decisions on both society as a whole and on the individual members therein.

Dwight is a beet farmer. His Total Benefits and Total Costs (measured in dollar terms) from different numbers of days worked per week are as stated in the following table.

What is the marginal cost of the 5th day's work?

$10

Normative statements

attempt to describe "how the world should be" or "how the world could be improved upon."

The above graph shows the Marginal Benefits of an activity for a decision maker. Suppose that this individual faces a constant Marginal Cost of $C.

Suppose that the decision-maker experiences a change in marginal cost from C=$34 to C=$29. As a result, the optimal choice of Q will

increase, consistent with Incentive Principle

Cyndi recently saw the Disney Alice in Wonderland show at the Cobb Energy Performing Arts Center in Marietta, GA. Her Total Benefits (TB) from seeing this show was $110, while her Total Costs (TC) was $60. From this information, it follows that her Economic Surplus

from attending the show was ($110)-($60) = ($50)

__________ is a universal phenomenon that arises because resources are limited

scarcity

The above graph shows the Marginal Benefits of an activity for a decision maker. Suppose that this individual faces a constant Marginal Cost of $C.

According to the graph, total benefits from engaging in this activity are maximized at:

Q = 5700

Dwight is a beet farmer. His Total Benefits and Total Costs (measured in dollar terms) from different numbers of days worked per week are as stated in the following table.

What is the marginal benefit of the 5th day's work?

$12

Dwight is a beet farmer. His Total Benefits and Total Costs (measured in dollar terms) from different numbers of days worked per week are as stated in the following table.

Using the Cost-Benefit Principle, determine how many days Dwight should work in order to maximize Total Economic Surplus

5

The Incentive Principle states that

if the marginal benefit of an activity increases, then a rational person will engage in more of the activity

Jimmy and James produce footballs and athletic shoes. Jimmy's opportunity cost of producing a football is lower than James's opportunity cost of producing a football. The ___________ suggests that they can increase their total output of these two goods if Jimmy focuses his production on footballs while James focuses his production on athletic shoes.

Law of Comparative Advantage

Alex and Mary produce surfboards and hair gel. Alex's opportunity cost of producing a surfboard is lower than Mary's opportunity cost of producing a surfboard. The _______________ suggests that they can increase their total output of these two goods if Alex focuses his production on surfboards while Mary focuses her production on hair gel.

Law of Comparative Advantage

Which of the following is NOT one of the Three Fundamental Economic Questions?

What to produce?

How to produce it?

For whom to produce?

Why to produce?

Why to produce?

Consider a society consisting of only two workers, Jim and John, who spend their workdays producing either footballs or sweatshirts. John has a comparative advantage in:

the production of footballs (but not in the production of sweatshirts)

Consider a society consisting of only two workers, Jim and John, who spend their workdays producing either footballs or sweatshirts. The productive ability of each worker for each task is summarized in the table below. ______ has an absolute advantage in the production of footballs; and _____ has an absolute advantage in the production of sweatshirts

Jim; Jim

Consider a society facing the Production Possibilities Frontier illustrated below. If this society wanted to produce550 cars, then their maximum output of wheat would be:

some amount more than 275 but fewer that 410 bushels of wheat

Assume a society with only three people: Susan, Arthur, and Maude. Susan and Arthur spend all day producing clothing and food. At the start of each day, Maude tells each worker precisely how much time to devote to the production of each good. The "fundamental economic question" that Maude is answering for this society is the

Resource Use Decision

Joanna and Brett produce oranges and peaches. In a single day, Joanna can produce either 90 oranges or 45 peaches. Based upon this information alone, we know that:

Joanna's Opportunity Cost for producing an orange is "½ peaches"

Consider a society facingthe ProductionPossibilities Frontier illustrated below. Which of the following combinations of output is "unattainable"?

"C" (525 cars and 530 bushels of wheat)

Consider a society facing the Production Possibilities Curve illustrated below. If this society wanted to produce 25 computers, then their maximum output of Corn would be

exactly 1,580 bushels of corn

Which of the following is an example of a Natural Asset?

The 1.7 trillion tons of coal reserves in the United States

Communism refers to an economic system in which

the means of production are collectively owned by all of the people in society (without any intervention by a government or state).

This is the term for a legal document which specifies what different parties must do, regardless of external circumstances, and provides enforcement or compensation for non-performance.

Contract

What is the name of an economic system in which some of the factors of production are privately controlled, while others are publicly owned and controlled?

Mixed Economy

Which of the following is one of the basic factors of production?

Land (Natural Assets)

Labor (including Human Capital)

Capital (Produced Assets)

All of the Above

All of the above

Which one of the following statements are correct?I-The socialism system is the precursor to feudalismII- The invisible hand doctrine suggests that total economic surplus of society is maximizedIII- The government tax break given when buying an electric car is an example of indicative planningIV- A statement that involves priorities and value judgments is generally regarded as a normative statement

II, III, and IV

Which of the following is NOT one of the three dimensions of Private Property Ownership?

Right to purchase

_______________ refers to the skills, education, and training which individuals in the labor force possess.

Human Capital

In a free market economy, households:

1)

do behave as "rational decision makers"

2)

are the primary suppliers of labor to firms

3)

are the ultimate consumers of most finished goods/services

4)

All the above are correct

All the above are correct

Capitalism refers to an economic system in which

the means of production are privately owned and operated for profit

Beginning with equilibrium in the table above, an increase in price of $2, would:

cause a shortage of 72

In the model of Supply and Demand, the market equilibrium

is unique, as a direct consequence of the Law of Supply and Law of Demand

If an increase in the demand for product X causes the demand curve for product Y to shift to the right, then X and Y are most likely to be which of the following?

Butter and margarine

Consider the market for chicken, with demand in 2014 and 2016 as illustrated below. Given that chicken is a normal good and pork is a substitute for chicken, which of the following could be a possible explanation for the change in demand between 2014 and 2016?

an increase in the price of pork

According to the law of supply, if the price of pencil increased, everything else held constant

the quantity supplied of pencils would increase

Assume that butter and margarine are substitute goods. Last week at a local food store, when the price of butter increased sharply, the demand for margarine immediately

shifted outward

Supply

refers to the entire relationship between the price of a good and the number of units that firms are willing and able to sell, all other factors fixed

A decrease in supply, with no change in demand, will lead to ________ in equilibrium quantity and ________ in equilibrium price

a decrease; an increase

If coffee and sugar are complementary goods, then an increase in the price of coffee, other things being equal, will result in

A decrease in the demand for sugar

Between March 2014 and March 2016 there was a decrease in both price and quantity traded in the market for apples. This observed change in market equilibrium outcome would result from

a decrease in Demand

A "buyer's reservation price"

refers to the maximum dollar amount a buyer is willing to pay for an item

This Graph illustrates the supply and demand for hats in 2016

If 1,970 units were traded, Deadweight-Loss would be

equal to "area (e) plus area (f)."

This Graph illustrates the supply and demand for hats in 2016

If 5,635 units were traded, Deadweight-Loss would be

negative

Christian bought 10 hats from Chad. This trade gave Christian a Consumer's Surplus of $30 and gave Chad a Producer's Surplus of $18. It follows that the trade

generated a Social Surplus of $48

This Graph illustrates the supply and demand for hats in 2016

In equilibrium, Total Consumers' Surplus would be

equal to "area (a)+(b)+(e)

In most markets Total Social Surplus is equal to

"Total Consumers' Surplus" plus "Total Producers' Surplus"

This Graph illustrates the supply and demand for hats in 2016

If 3,345 (at the efficient level) units were traded, Deadweight-Loss would be

zero

Focusing on the 3,400th unit, the value of the "buyer's reservation price" of this unit is _________, while the value of the "seller's reservation price" of this unit is___________

$20.70; $8.50

"Deadweight Loss" refers to:

the difference between "maximum possible Total Social Surplus" and"Realized Total Social Surplus."

A "seller's reservation price"

refers to the minimum dollar amount a seller is willing to accept in exchange for an item

This society's Unemployment Rate is__________

26.66%

______________ refers to a general increase in the level of overall prices.

Inflation

Workers at a car-manufacturing plant in Flint, Michigan are laid off because the economy is weak and GM cars aren't selling well. GM isn't sure when the plant will reopen. What type of unemployment describes the workers' situation?

Cyclical unemployment

Which one of the following persons would NOT be considered unemployed?

A teacher who has given up looking for work after 18 months without a job

There are___________ people in the labor force of this society

300,000

_______________ refers to the production of goods and services, valued in each period according to current period prices.

Nominal GDP

Consider a country with consumption expenditures, private investment expenditures, government purchases, imports, and exports as summarized in the table below (each measured in millions of dollars):

For this country, "net exports (NX) or (X)" are equal to

$18 million

Hyperinflation is

an extremely high rate of inflation, generally above 100% per year

A good that is used in the production process that is not itself a final good or service is ___________________.

an intermediate good

Consider a country with consumption expenditures, private investment expenditures, government purchases, imports, and exports as summarized in the table below (each measured in millions of dollars):

For this country, "Gross Domestic Product (GDP) " is equal to

$1,162 million

A society can achieve economic growth by...

making deliberate investments in human capital and physical capital.

making deliberate investments in overhead capital.

realizing an improvement in technology.

More than one (perhaps all) of the above answers is correct.

More than one (perhaps all) of the above answers is correct.

Supose that "Country Z" were to realize a constand GDP Growth Rate of 4% per year. It follows that Real GDP would double in roughly ______ years.

18

The 'Catch-up Effect" suggests that, all other factors being held constant, ...

growth rates of less developed countries typically exceed growth rates of developed countries, implying that the gap in GDP between less developed and developed countries will decrease over time.

Economic growth is...

defined as a sustained increases over time in a society's value of real GDP.

On a country's PPF, economic growth is

illustrated by an outward shift of the PPF

(T/F) According to the PPF shown, this particular country has experienced economic growth from 1999 to 2019

True

_________________ broadly refers to the knowledge, education, skills, experience, work ethic, inter-personal skills, and other attributes which determine worker productivity.

Human Capital

Which of the following is considered an impediment (obstacle) to economic growth?

Difficulties in developing physical capital

Difficulties in developing human resources

Poor legal, political, and economic institutions

All of these choices are correct.

All of these choices are correct

Using the rule of 72, what is the average annual growth rate of GDP needed for a country to double its size in just 12 years?

6 percent

"Economic Development" is defined as

improvements over time in a society's quality of life and living standards

Based on the graph above, the efficient level of production would be...

3,900

Consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. The efficient level of output for this good is_____units.

6,750

Negative externalities are created when

a driver drives recklessly on a busy highway

This graph illustrates "Marginal Private Benefits," "Marginal Private Costs," "Marginal Social Benefits," and "Marginal Social Costs" in the market for "Good X." Based upon this graph, it appears as if this good

generates a negative externality

"Market Failure" is defined as a situation in which

the free market outcome is inefficient, in that there is a positive Deadweight Loss at the free market level of trade

Consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. To maximize profit, this firm should charge a price of_________ and sell____ units.

$5.45; 4,200

Based on the graph above, the value of the marginal external cost of production is...

$6.00

Based on the graph above, the actual level of market output would be...

3,900 units

Consider a good for which there is a positive externality. If this good were provided by the market, then

less than the efficient amount of the good would be traded

Which of the following is NOT one of the four sources of market failure discussed in lecture?

Regulatory capture

In a vote on all 5 candidates, which candidate would get the most number of votes?

Tom

________________ is defined as the process by which a legislator votes to approve one bill in exchange for favorable votes from other legislators on other bills

Logrolling

The graph above shows a per-unit tax on a good. According to the graph, the value of the tax is...

$1.00

The graph above shows a per-unit tax on a good. According to the graph, the amount of deadweight loss generated by the tax is equal to the area...

c + f

"Government Failure" is defined as a situation in which

a situation in which Total Social Surplus is decreased by government intervention in a market

If Penny, Liz, and Tom go into a three-way runoff, which candidate would win?

Liz

Regulatory Capture refers to a situation in which

firms in a regulated industry influence a regulatory agency to the point where the agency makes decisions which are in the best interest of the firms (even if the decisions are not in the best interest of the public)

The _________________ refers to a situation in which a series of pair-wise majority votes over more than two options leads to a cycling of winners.

Condorcet Paradox

_______________ is an environment of extreme corruption in which government officials unabashedly seek personal gain at the expense of the public interest

kleptocracy

The graph above shows a per-unit tax on a good. According to the graph, amount of the good bought and sold after the tax is implemented is...

4,200 units

One of the "7 Determinants of Productivity, Income, and Wealth" is "effort," which refers to the recognition that differences in income or wealth across individuals could result from differences in...

how hard individuals choose to work

The Lorenz curve provides a picture of how income is distributed among members of a population. If the Lorenz curve bows down, far away from the line of income equality, then

the inequality of the distribution of income is greater

(T/F) A proportional tax is a tax for which the Average Tax Rate remains constant as an individual's income increases/decreases.

True

The Gini-Coefficient provides a quantitative measure of

income equality/inequality within a society

Incomes may differ across different individuals in a free market society due to

some factors which are under the control of the individual (such as "how much education to acquire") and some factors which are beyond the control of the individual (such as their "endowment at birth of natural talent and ability")

(T/F) The time-price of most goods has decreased significantly over the years.

True

(T/F) One reason that measuring poverty is complicated is that poverty thresholds are continually adjusted upward.

True

(T/F) The larger the Gini Coefficient, the more equal the income distribution for a society.

False

________________ is a broad term which refers to monetary payments made by the government to certain individuals in society, with the impact of altering the distribution of income within a society.

Income support

(T/F) The U.S. federal income tax is a regressive tax.

False