Chapter 1-2
Because people respond to incentives, _______.
a. policymakers can alter outcomes by changing punishments or rewards
b. policies can have unintended consequences
c. society faces a trade-off between efficiency and equality
d. all of the answer choices are correct
d. all of the answer choices are correct
Opportunity Cost is...
whatever must be given up to obtain some item
True or False: The supply curve for a good shows how the quantity supplied depends on the price. According to the law of supply, as the good’s price rises, the quantity supplied rises. That’s why the supply curve slopes upward.
True
When the government imposes a binding price floor, it causes _________.
a. the supply curve to shift to the left
b. a surplus of the good to develop
c. a shortage of the good to develop
d. the demand curve to shift to the right
b. a surplus of the good to develop
Carla bakes a cake and sells it to Norm for $10. Sam pays Diane $30 to tutor him. In this economy, GDP is _________.
$40
A point inside the production possibilities frontier is _______.
feasible but not efficient
If two parties trade based on comparative advantage and both gain, in what range must the price implicit in the trade lie?
For both parties to gain from trade, the price at which they trade must lie between their opportunity costs.
Today's supply curve for corn could shift in response to a change in _______.
a. today's price of corn
b. today's demand for corn
c. consumer's income levels
d. the expected future price of corn
the expected future price of corn
True or False: A tax burden falls more heavily on the side of the market that is less elastic.
True: Most of the burden falls on the side of the market that is less elastic because it cannot respond as easily to the tax by changing the quantity bought or sold.
Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here?
40+40=80
A normative statement is an assertion about how the world should be. When economists make normative statements, they are acting more as _______________ than as scientists.
Policy Advisors
True or False
Comparative advantage is the driving force of specialization.
TRUE
The market for which product best fits the definition of a perfectly competitive market?
a. Eggs
b. Tap water
c. Movies
d. Computer operating systems
Eggs
Give an example of a price floor or price ceiling.
Ceiling: Rent
Floor: Min. Wage
An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction?
a. Net exports do not change, while GDP rises.
b. Net exports fall, while GDP does not change.
c. Net exports and GDP both rise.
d. Net exports and GDP both fall.
b. Net exports fall, while GDP does not change.
Economists may disagree because they have different _______.
hunches about the validity of alternative theories judgments about the size of key parameters. political philosophies about the goals of public policy
(Scientific Judgments, Values, Perception v Reality)
China and Japan both produce clothing and computers. China is said to have the comparative advantage in producing clothing if _______.
Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. In order for China to have a comparative advantage in producing clothing, the opportunity cost of producing clothing must be lower for China than for Japan.
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
Prices and quantities both rise.
Tax incidence is..
the manner in which the burden of a tax is shared among participants in a market
Which is the largest component of GDP?
Consumption, Investment, Government purchases, Net exports
Consumption
The main reason that some nations have higher average living standards than others is that _______.
some nations have higher levels of productivity
Juanita can read 30 pages of economics in an hour. She can also read 20 pages of sociology in an hour. She spends 6 hours per day studying.
Juanita's opportunity cost of reading 60 pages of sociology is_______pages of economics.
60 pages sociology -3hrs
30+30+30=90
True or False: A decrease in supply of notebooks lowers the quantity of notebooks supplied but not the quantity demanded.
False
A decrease in the supply of notebooks will cause the supply curve to shift to the left, resulting in a movement along the demand curve. Since the demand curve is downward-sloping, both the quantity of notebooks demanded and the quantity supplied will decrease.
Suppose the government places a $500 tax on luxury cars.
If the demand curve for luxury cars were perfectly inelastic, the price paid by consumers will rise by___________
Inelastic means that a price change does not have a large effect in quantity demanded
Exactly 500
In the economy of Urbania in 2019, consumption was $5,000, exports were $700, government purchases were $1,000, imports were $400, and investment was $1,200. What was Urbania's GDP in 2019?
Y = C + I + G + NX =
$5,000 + $1,200 + $1,000 + $700 - $400 = $7,500