EC 201 FS17 Amsler Flashcards
(132 cards)
1
Q
Economics is best defined as the study of
A
how society manages its scarce resources
2
Q
Your opportunity cost of going to a movie is
A
the total cash expenditure needed to go to the movie plus the value of your time
3
Q
A marginal change is one that
A
incrementally alters an existing plan
4
Q
Adam Smith’s phrase “invisible hand” refers to
A
the ability of free markets to reach desirable outcomes, despite the self-interest of market participants
5
Q
Governments may intervene in a market economy in order to
A
protect property rights, correct a market failure due to externalities, and achieve a more equal distribution of income.
6
Q
If a nation has high and persistent inflation, the most likely explanation is
A
the central bank creating excessive amounts of money
7
Q
An economic model is
A
a simplified representation of some aspect of the economy.
8
Q
The circular-flow diagram illustrates that, in markets for the factors of production,
A
households are sellers, and firms are buyers
9
Q
A point inside the production possibilities frontier is
A
feasible, but not efficient
10
Q
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers’ preferences, it would
A
move the economy along the production possibilities frontier
11
Q
All of the following topics fall within the study of microeconomics EXCEPT
A
the influence of the government budget deficit on economic growth
12
Q
Which of the following is a positive, rather than a normative, statement?
A
Law X will reduce national income
13
Q
In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?
A
Tyler in washing, neither in mowing
14
Q
Once again, in an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?
A
Tyler in washing, Mateo in mowing
15
Q
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage,
A
they both obtain consumption outside their production possibilities frontier
16
Q
Which goods will a nation typically import?
A
those goods in which other nations have a comparative advantage
17
Q
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. What will these nations trade?
A
China will export shirts, while the United States will export aircraft.
18
Q
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do each task. How should the roommates allocate the work?
A
There are no gains from trade in this situation.
19
Q
Emilio buys pizza for $10 and soda for $2. He has income of $100.
A
The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
20
Q
At any point on an indifference curve, the slope of the curve measures the consumer’s
A
willingness to trade one good for the other.
21
Q
Matthew and Susan are both optimizing consumers in the markets for shirts and hats, where they pay $100 for a shirt and $50 for a hat. Matthew buys 4 shirts and 16 hats, while Susan buys 6 shirts and 12 hats. From this information, we can infer that Matthew’s marginal rate of substitution is _____ hats per shirt, while Susan’s is _____.
A
2, 2
22
Q
Darius buys only lobster and chicken. Lobster is a normal good, while chicken is an inferior good. When the price of lobster rises, Darius buys
A
less lobster and more chicken.
23
Q
If the price of pasta increases and a consumer buys more pasta, we can infer that
A
pasta is an inferior good, and the income effect is greater than the substitution effect.
24
Q
The labor supply curve slopes upward if
A
the substitution effect on leisure is greater than the income effect.
25
Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40. Xavier has an accounting profit of _____ and an economic profit of ____.
$50, $10
26
Diminishing marginal product explains why, as a firm’s output increases,
the production function gets flatter, while the total cost curve gets steeper.
27
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
Marginal cost is $8, and average total cost is $5.
28
A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur?
Average total cost would decrease.
29
The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
Average total cost and average fixed cost.
30
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
economies, falling
31
A perfectly competitive firm
takes its price as given by market conditions.
32
A competitive firm maximizes profit by choosing the quantity at which
marginal cost equals the price.
33
A competitive firm’s short-run supply curve is its ________ cost curve above its ________ cost curve.
marginal, average variable
34
If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will
keep producing in the short run but exit the market in the long run.
35
In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price marginal cost and average total cost?
P=MC and P=ATC
36
Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run?
no change in the short run, down in the long run
37
A change in which of the following will not shift the demand curve for hamburgers?
The price of hamburgers
38
An increase in ________ will cause a movement along a given demand curve, which is called a change in ________.
supply, quantity demanded
39
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?
The demand curve shifts to the right.
40
The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.
supply, lower
41
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
Prices and quantities both rise.
42
Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?
An increase in the price of grapes, an input to jelly
43
A life-saving medicine without any close substitutes will tend to have:
A small elasticity of demand
44
The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is:
1/2
45
A linear, downward-sloping demand curve is
inelastic at some points and elastic at others.
46
The ability of firms to enter and exit a market over time means that, in the long run,
the supply curve is more elastic.
47
An increase in the supply of a good will decrease the total revenue producers receive if
the demand curve is inelastic.
48
Over time, technological advance increases consumers' incomes and reduces the price of smartphones. Each of these forces increases the amount consumers spend on smartphones if the income elasticity of demand is greater than _____ and if the price elasticity of demand is greater than _____.
zero, one
49
When the government imposes a binding price floor, it causes
a surplus of the good to develop
50
In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________.
increase, decrease, shortage
51
A $1 per unit tax levied on consumers of a good is equivalent to
a $1 per unit tax levied on producers of the good.
52
Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay?
The imposition of a binding price floor
53
Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?
The repeal of a tax levied on producers
54
When a good is taxed, the burden of the tax falls mainly on consumers if
supply is elastic, and demand is inelastic.
55
Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price of $200.
consumer surplus is $20 larger than producer surplus.
56
The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus?
It falls by less than $100.
57
John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Jasmine enters the market and begins tutoring as well. How much does producer surplus rise as a result of this price increase?
between $100 and $200
58
An efficient allocation of resources maximizes
consumer surplus plus producer surplus.
59
When a market is in equilibrium, the buyers are those with the ________ willingness to pay, and the sellers are those with the ________ costs.
highest, lowest
60
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is
positive but less than the marginal seller's cost.
61
A tax on a good has a deadweight loss if
the reduction in consumer and producer surplus is greater than the tax revenue.
62
Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price.
What is the change in producer surplus, change in consumer surplus, and deadweight loss?
$0, –$10, $0
63
Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping.
If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax
increases by more than 50 percent.
64
Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve.
If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue
increases by less than 50 percent and may even decline.
65
The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the
government's tax revenue.
66
If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply.
small, small
67
Which of the following is an example of a positive externality?
Hillary's newly cut lawn makes her neighborhood more attractive.
68
If the production of a good yields a negative externality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity.
above, less
69
When the government levies a tax on a good equal to the external cost associated with the good's production, it ________ the price paid by consumers and makes the market outcome ________ efficient.
increases, more
70
Which of the following statements about corrective taxes is generally not true?
They cause deadweight losses.
71
The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000.
This policy is equivalent to a corrective tax of _____ per unit of pollution
$50
72
The Coase theorem does not apply if
transaction costs make negotiating difficult.
73
If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then
the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade.
74
When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls.
Which of the following describes the situation?
Domestic production of coffee falls, and Ectenia becomes a coffee importer.
75
When a nation opens itself to trade in a good and becomes an importer,
producer surplus decreases, but consumer surplus and total surplus both increase.
76
If a nation that imports a good imposes a tariff, it will increase
the domestic quantity supplied.
77
Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?
Starting to allow trade when the world price is greater than the domestic price
78
The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases
government revenue.
79
Approximately what percentage of U.S. national income is paid to workers, as opposed to owners of capital and land?
65%
80
If firms are competitive and profit maximizing, the demand curve for labor is determined by
the value of the marginal product of labor.
81
A bakery operating in competitive markets sells its output for $20 per cake and hires labor at $10 per hour. To maximize profits, it should hire labor until the marginal product of labor is
1/2 cake per hour.
82
A technological advance that increases the marginal product of labor shifts the labor ________ curve to the ________.
demand, right
83
Around 1973, the U.S. economy experienced a significant ________ in productivity growth, coupled with a(n) ________ in the growth of real wages.
slowdown, slowdown
84
A storm destroys several factories, thereby reducing the stock of capital. What effect does this event have on factor markets?
Wages fall, and the rental price of capital rises.
85
A firm is a natural monopoly if it exhibits the following as its output increases:
decreasing average total cost.
86
For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price marginal revenue and marginal cost ?
P>MR and MR=MC
87
If a monopoly’s fixed costs increase, its price will _____, and its profit will _____.
stay the same, decrease
88
Compared to the social optimum, a monopoly firm chooses
a quantity that is too low and a price that is too high.
89
The deadweight loss from monopoly arises because
some potential consumers who forgo buying the good value it more than its marginal cost.
90
When a monopolist switches from charging a single price to perfect price discrimination, it reduces
consumer surplus.
91
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?
It takes its price as given by market conditions.
92
Which of the following markets best fits the definition of monopolistic competition?
The market for haircuts
93
A monopolistically competitive firm will increase its production if
marginal revenue is greater than marginal cost.
94
New firms will enter a monopolistically competitive market if
price is greater than average total cost.
95
What is true of a monopolistically competitive market in long-run equilibrium?
Price is greater than marginal cost.
96
If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
decrease, increase
97
The key feature of an oligopolistic market is that
a small number of firms are acting strategically.
98
If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.
less than, equal to
99
If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.
less than, more than
100
As the number of firms in an oligopoly grows large, the industry approaches a level of output that is ________ the competitive level and ________ the monopoly level.
equal to, more than
101
The Prisoners’ Dilemma is a two-person game illustrating that
even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.
102
The anti-trust laws aim to
prevent firms from acting in ways that reduce competition.
103
Which categories of goods are excludable?
Private goods and club goods
104
Which categories of goods are rival in consumption?
Private goods and common resources
105
Which of the following is an example of a public good?
National defense
106
Which of the following is an example of a common resource?
Fish in the ocean
107
Public goods are
underprovided in the absence of government.
108
Common resources are
overused in the absence of government.
109
Because Elaine has a family history of significant medical problems, she buys health insurance, while her friend Jerry, who has a healthier family, goes without.
adverse selection.
110
George has a life insurance policy that pays his family $1 million if he dies. As a result, he does not hesitate to enjoy his favorite hobby of bungee jumping.
moral hazard.
111
Before selling anyone a health insurance policy, the Kramer Insurance Company requires that applicants undergo a medical examination. Those with significant preexisting medical problems are charged more.
screening.
112
The Condorcet Paradox illustrates Arrow’s Impossibility theorem by showing that pairwise majority voting
leads to social preferences that are not transitive.
113
Two political candidates are vying for town mayor, and the key issue is how much to spend on the annual Fourth of July fireworks. Among the 100 voters, 40 voters want to spend $30,000, 30 voters want to spend $10,000, and 30 voters want to spend nothing at all.
What is the winning position on this issue?
$10,000
114
The experiment called the ultimatum game illustrates that people
care about fairness, even to their own detriment.
115
The two largest sources of tax revenue for the U.S. federal government are
personal income taxes and payroll taxes for social insurance.
116
Aiden gives piano lessons. He has an opportunity cost of $50 per lesson and charges $60. He has two students: Brandon, who has a willingness to pay of $70, and Chloe, who has a willingness to pay of $90.
When the government puts a $20 tax on piano lessons and Aiden raises his price to $80, the deadweight loss is _____ and the tax revenue is _____.
$20, $20
117
If the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _____ percent and a marginal tax rate of _____ percent.
15, 25
118
A toll is a tax on those citizens who use toll roads. This policy can be viewed as an application of
the benefits principle.
119
In the United States, taxpayers in the top one percent of the income distribution pay about _____ percent of their income in federal taxes
30
120
If the corporate income tax induces businesses to reduce their capital investment, then
workers bear some of the burden of the tax.
121
In the United States, the poorest fifth of the population earns about _____ percent of all income, while the richest fifth earns about _____ percent.
4, 50
122
When income inequality is compared across nations, one finds that the United States is
less equal than most nations but not the least equal.
123
A utilitarian believes that the redistribution of income from the rich to the poor is worthwhile as long as
the distortionary effect on work incentives is not too large.
124
Rawls’s thought experiment of the “original position” behind the “veil of ignorance” is meant to draw attention to the fact that
the station of life each of us was born into is largely a matter of luck.
125
A negative income tax is a policy under which
individuals with low income get transfers from the government.
126
If the benefits from an antipoverty program are phased out as an individual’s income increases, then the program will
increase the effective marginal tax rate that the poor face.
127
Ted leaves his job as a high school math teacher and returns to school to study the latest developments in computer programming, after which he takes a higher-paying job at a software firm.
human capital.
128
Marshall and Lily work at a local department store. Marshall, who greets customers as they arrive, is paid less than Lily, who cleans the bathrooms.
a compensating differential.
129
Barney runs a small manufacturing company. He pays his employees about twice as much as other firms in the area, even though he could pay less and still recruit all the workers he wants. He believes that higher wages make his workers more loyal and hard-working.
efficiency wages.
130
A business consulting firm hires Robin because she was a math major in college. Her new job does not require any of the mathematics she learned, but the firm believes that anyone who can graduate with a math degree must be very smart.
signaling.
131
Measuring how much discrimination affects labor market outcomes is difficult because
workers differ in their attributes and the types of jobs they have.
132
The forces of competition in markets with free entry and exit tend to eliminate wage differentials that arise from discrimination by
employers
