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The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
people face tradeoffs.
Productivity is defined as the
amount of goods and services produced from each unit of labor input.
Approximately what percentage of the world's economies experience scarcity?
A tradeoff exists between a clean environment and a higher level of income in that
Suppose the average income of a citizen of Poland is higher than the average income of a citizen of Romania. You might conclude that
productivity in Poland is higher than in Romania
Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?
People respond to incentives
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?
the amount you value the first movie + $3
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should
be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should
rent the room because the marginal benefit exceeds the marginal cost.
The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as
Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement?
Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. The opportunity cost of moving from point U to point R is
60 Bushels of Apples
Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. Which combination of points show production possibilities only achievable with improvements in technology or increases in resources?
S and X
Table 2-5 shows one set of production possibilities. What is the opportunity cost of an increase in the production of wheat from 700 bushels to 1300 bushels?
400 bushels of corn
Which of the following events would explain the shift of the production possibilities frontier from A to B?
The movement from point M to point K could be caused by
it still would not be producing efficiently. (it below the curve).
The opportunity cost of obtaining 40 additional dryers by moving from point D to point C is
None of the above; the economy cannot move from point D to point C.
What is the opportunity cost to Picnicland of increasing the production of burgers from 450 to 750?
Table 2-1 The following table contains some production possibilities for an economy for a given month. If the production possibilities frontier is bowed outward, then "?" could be.
750 (Not exactly sure how…)
Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?
(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)
Assume that Indonesia and India can switch between producing rice and bananas at a constant rate. Refer to Table 3-34. India's opportunity cost of producing rice is
2 units of bananas. This is higher than Indonesia's opportunity cost of producing rice.
Refer to Table 3-35. Denmark's opportunity cost of producing 1dozen eggs is
5/4 pounds of ham. This is lower than Finland's opportunity cost of producing 1 dozen eggs.
Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible production per month if both work the same number of 8 hour days. Which of the following prices would result in a mutually advantageous trade between Chris and Tony?
Both a and b are correct
Refer to Table 3-31. Relative to the rancher, the farmer has a comparative advantage in the production of
potatoes, but not in the production of meat.
Refer to Figure 3-21. If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails, then
both Uzbekistan and Azerbaijan will gain from this trade.
Refer to Figure 3-19. Chile has a comparative advantage in the production of
soybeans and Colombia has a comparative advantage in the production of coffee
Refer to Figure 3-16. If Hosne and Merve switch from each person dividing her time equally between the production of purses and wallets to each person spending all of her time producing the good in which she has a comparative advantage, then total production of purses will increase by
Refer to Table 3-36. Assume that Antigua and Barbuda each has 60 minutes available. If each island spends all its time producing the good in which it has a comparative advantage, then total production is
5 towels and 6 umbrellas
The quantity demanded of a good is the amount that buyers are
willing and able to purchase
A decrease in quantity demanded
results in a movement upward and to the left along a demand curve.
Refer to Table 4-9. Which combination would produce a decrease in equilibrium price and an indeterminate change in equilibrium quantity?
C (An Increase in Supply & A Decrease in Demand)
Table 4-10 The following table shows the number of cases of water each seller is willing to sell at the prices listed. Refer to Table 4-10. If Alpine Springs and Dew Good are the only two suppliers in this market, by how much does the market quantity supplied change with each $3 increase in price?
Which of the following would not shift the supply curve for mp3 players?
an increase in the price of mp3 players
Which of the following events would cause a movement upward and to the right along the supply curve for mangos?
The price of mangos rises.
Refer to Figure 4-27. Which of the four panels represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester?
Refer to Figure 4-9. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events?
The price of cigarettes increased.
Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for bullet-proof vests of an increase in the price of Kevlar?
Point C to Point D
Refer to Figure 4-8. Suppose the figure shows the market demand for coffee. Suppose the price of tea, a substitute good, increases. Which of the following changes would occur?
a shift from D2 to D1
A tax on the sellers of coffee mugs
decreases the size of the coffee mug market
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling
Refer to Figure 6-30. In which market will the tax burden be most equally divided between buyers and sellers?
the market shown in panel (c)
Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?
the market shown in panel (a)
*"X" tilted to the left
When OPEC raised the price of crude oil in the 1970s, it caused the United States'
nonbinding price ceiling on gasoline to become binding.
Refer to Table 6-5. Suppose the government imposes a price floor of $3 on this market. What will be the size of the surplus (or shortage) in this market?
Refer to Figure 6-16. In this market, a minimum wage of $7.25 creates a labor
surplus of 4,500 workers.
Refer to Figure 6-15. Suppose a price ceiling of $2 is imposed on this market. As a result,
buyers' total expenditure on the good falls by $15
Refer to Figure 6-15. For a price floor to be binding in this market, it would have to be set at
any price above $3.
Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?
Welfare economics is the study of how
the allocation of resources affects economic well-being.
Consumer surplus equals the
value to buyers minus the amount paid by buyers.
What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?
Consumer surplus may increase, decrease, or remain unchanged
*Anything can happen
Refer to Figure 7-8. If the government imposes a price ceiling of $80 in this market, then, assuming those with the highest willingness to pay purchase the good, consumer surplus will be
Refer to Figure 7-7. What happens to the consumer surplus if the price rises from $100 to $150?
The new consumer surplus is 25 percent of the original consumer surplus.
Refer to Figure 7-6. At the equilibrium price, consumer surplus is
Refer to Figure 7-5. If the price of the good is $6, then consumer surplus is
Refer to Figure 7-4. Which area represents the increase in consumer surplus when the price falls from P1 to P2?
Total surplus in a market will increase when the government
Neither a nor b is correct
At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes
neither consumer nor producer surplus
Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?
The response of buyers and sellers to a change in the price of bananas is strong.
Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is
Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price paid by buyers to
increase by $2
Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is
Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,
the deadweight loss amounts to $6.
Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The price that sellers receive is
Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?
Kate and William will agree to a new price somewhere between $85 and $100
Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses after the tax is imposed is
Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is
Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. Refer to Figure 8-8. One effect of the tax is to
All of the above are correct.
When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
producer surplus increases and total surplus decreases in the market for that good
Figure 9-19. On the diagram below, Q represents the quantity of textiles and P represents the price of textiles. Refer to Figure 9-19. With free trade, consumer surplus in the textile market amounts to
Figure 9-19. On the diagram below, Q represents the quantity of textiles and P represents the price of textiles. Refer to Figure 9-19. With free trade, the country for which the figure is drawn will
import 50 units of textiles.
Figure 9-18. On the diagram below, Q represents the quantity of peaches and P represents the price of peaches. The domestic country is Isoland. Refer to Figure 9-18. If Isoland allows international trade and if the world price of peaches is $5, then
Isoland has a comparative advantage, relative to other countries, in producing peaches.
Refer to Figure 9-17. The deadweight loss caused by the tariff is
Refer to Figure 9-17. With trade and a tariff, total surplus is
Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called
economies of scale.
Honduras is an importer of goose-down pillows. The world price of these pillows is $50. Honduras imposes a $7 tariff on pillows. Honduras is a price-taker in the pillow market. As a result of the tariff, the price of goose-down pillows in Honduras
increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases.
Figure 9-14. On the diagram below, Q represents the quantity of crude oil and P represents the price of crude oil. Refer to Figure 9-14. A result of this country allowing international trade in crude oil is as follows:
The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel
Refer to Figure 9-12. Consumer surplus before trade is
GDP is equal to
All of the above are correct
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.
How is net national product (NNP) calculated?
Depreciation losses are subtracted from the total income of a nation's citizens
In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was $6300, government purchases were $1300, and investment was $1500. What were Talikastan's imports in 2015?
GDP = C+I+NX+G
A recession has traditionally been defined as a period during which
real GDP declines for two consecutive quarters
Table 23-7 The table below contains data for the country of Togogo. The base year is 1974. Refer to Table 23-7. From 1975 to 1976,
inflation was 25% and output did not grow
Table 23-6 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2013. Refer to Table 23-6. This country's inflation rate from 2012 to 2013 was
The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected.
An American retailer purchased 500 pairs of shoes from a company in Thailand in the second quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. Which of the following components of U.S. GDP is affected by this transaction in the third quarter of 2016?
only consumption and investment
Table 23-6 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2013. Refer to Table 23-6. In 2013, this country's GDP deflator was
*the GDP deflator of the base year itself is equal to 100.
The CPI is a measure of the overall cost of
the goods and services purchased by a typical consumer.
Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Refer to Table 24-9. What is the consumer price index for May?
In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about
You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?
five cents (today's CPI / 1962 CPI)
A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by
adjusting the price of the good to account for the quality change.
The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?
A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator
Recent changes in methods used to compute the CPI have made the
upward bias in the CPI inflation rate less severe than it used to be
Which of the following is the most accurate statement about the effects of quality change on the CPI?
Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure.
By not taking into account the possibility of consumer substitution, the CPI
overstates the cost of living
If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about
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