Chapters 1-2
Economics is best defined as the study of _______.
How society manages it's scarce resources
If gum and breath mints are substitutes, a higher price for gum would _______.
increase the demand for breath mints
When the price of a good increases, the demand for its substitutes increases.
A price floor is ...
price floor a legal minimum on the price at which a good can be sold
Thomas Robert Malthus believed that population growth would ____________.
put stress on the economy's ability to produce food, dooming humans to remain in poverty
According to the theory of efficiency wages, __________.
firms may find it profitable to pay above-equilibrium wages
Adam Smith's "invisible hand" refers to _______.
the ability of free markets to reach desirable outcomes, despite the self-interest of market participants
True of False
For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to have a comparative advantage in both activities.
True
True or False
Nominal GDP is a better gauge of economic well-being than real GDP.
False
If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is _______.
real interest rate = nominal rate-inflation rate
10 - 4 = 6 percent
The main policy goal of unemployment insurance is to reduce the _________.
income uncertainty that workers face
True or False
Points on the production possibilities frontier represent efficient levels of production.
True
Idris Elba should pay someone else to mow his lawn instead of mowing it himself, unless _______.
Elba has a comparative advantage over everyone else in mowing his lawn
Even if Idris Elba can mow his own lawn faster than anyone else, whether or not he should mow his own lawn is a question of opportunity cost and comparative advantage. The time it takes for Elba to mow his lawn means less time for him to spend making movies, participating in media events, etc. In other words, there's likely a high opportunity cost for him to mow his lawn. Therefore, Elba should pay someone to mow his lawn unless he has a comparative advantage over everyone else in doing so.
GDP is an imperfect measure of well-being because it __________.
ignores the environmental degradation from economic activity
Increases in the amount of human capital in the economy tend to ________ real incomes because they increase the ________ of labor.
increase; productivity
Structural Unemployment is...
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
Economists may disagree because they have different _______.
Differences in..
Scientific Judgements
Perception v Reality
Values
If Jeff can produce more cookies in one day than Josie can produce in one day, then _______.
Jeff has an absolute advantage in the production of cookies
Absolute advantage is the ability to produce a good using fewer inputs than another producer. Because Jeff can produce more cookies in one day than Josie can produce, Jeff has an absolute advantage in the production of cookies. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. Since we have no information about the opportunity cost of production for either individual, we cannot conclude who has the comparative advantage in cookie production.
When the government imposes a binding price floor, it causes _________.
surplus of the good to develop
The introduction of new goods creates a problem when measuring the CPI because _______.
the CPI is based on a fixed basket of goods and services and does not reflect the increased value as a result of a larger variety of goods
It is difficult to measure the increased value as a result of new and improved goods.
Bank assets divided by bank capital is known as _______.
the leverage ratio
The leverage ratio of a bank is the ratio of its assets to bank capital.
The Production possiblies Frontier shows...
the combinations of output that the economy can possibly produce with the available factors of production and production technology
If sellers expect lower prices in the near future, the current _______.
supply will increase
If sellers expect lower prices in the near future, they will increase supply today while the price is relatively high. If sellers expect lower prices in the near future, they will increase supply today while the price is relatively high.
Jong lives in an apartment where he pays $8,000 a year in rent. Micha lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP?
18,000
GDP includes both rents and estimated rents of owner-occupied homes.
Technological Knowledge is...
society’s understanding of the best ways to produce goods and services
Suppose a bank has total assets of $1,000, capital of $50, and liabilities of $950; the leverage ratio for this bank is _______.
20
The leverage ratio is the ratio of assets to bank capital, $1,000/$50 = 20