Exam 1 - Practice Problems & Notes

Question 1

Which of the following exemplifies a microeconomic question?

Answer 1

Will a new type of electronic reader or tablet increase the number of buyers?

Question 2

Which of the following do economists consider to be capital?

Answer 2

A construction crane

Question 3

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea of

Answer 3

scarcity and opportunity costs

Question 4

From and economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that the

Answer 4

marginal cost of waiting is greater than the marginal benefit of being served

Question 5

Which of the following is consistent with the law of demand?

Answer 5

An increase in the price of hamburgers causes buyers to buy fewer hamburgers

Question 6

Which of the following would most likely increase the demand for gasoline?

Answer 6

The expectation by consumers that gasoline prices will be higher in the future

Question 7

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an

Answer 7

increase in the quantity of A demanded and a decrease in the demand for B

Question 8

If a subsidy is provided for the production of good X, this will shift the:

Answer 8

supply curve for X to the right

Question 9

Farmers withholding some of their current corn harvest from the market because they anticipate a higher price of corn in the near future would cause a

Answer 9

leftward shift in the current supply of corn

Question 10

Which one of the following would not affect the position of the supply curve for cranberries?

Answer 10

Popularity of cranberry drinks

Question 11

An increase in demand for oil along with a simultaneous increase in supply of oil will

Answer 11

increase quantity, but whether it increases price depends on how much each curve shifts

Question 12

The two reasons why bankruptcy is a false concern about the public debt are

Answer 12

refinancing and taxation

Question 13

Which one of the following is not an example of final goods in national income accounting?

Answer 13

lumber and steel beams purchased by a construction company

Question 14

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is

Answer 14

1,500

Question 15

Which of the following is included in GDP?

Answer 15

Fees received by stockbrokers

Question 16

In November 2009, Econland Motors produced an automobile that was delivered to a local dealership in December 2009. The auto was then sold to Sharon Smith for personal use in February of 2010. Following national income accounting practices, this auto would be counted as part of

Answer 16

investment in 2009 and negative investment in 2010

Question 17

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption expenditures ($2,460), and government purchases ($470). What is GDP in this economy?

Answer 17

$3,237 billion

Question 18

A large underground economy results in an

Answer 18

understated GDP

Question 19

Economic growth in the U.S. since 1950 has been characterized by an

Answer 19

average growth rate in real GDP that is faster than the growth rate of the population

Question 20

Use the list below to answer the next question.
1. Improvements in technology.
2. Increases in the supply (stock) of capital goods.
3. Purchases of expanding output.
4. Obtaining the optimal combination of goods, each at least-cost production.
5. Increases in the quantity and quality of natural resources.
6. Increases in the quantity and quality of human resources.
Which set of items in the list would shift an economy’s production possibilities curve outward?

Answer 20

1, 2, 5, and 6.

Question 21

Suppose there are two economies, Alpha and Beta, that have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future

Answer 21

Beta will experience greater economic growth than Alpha.

Question 22

A nation’s real GDP was $250 billion in 2013 and $265 billion in 2014. Its population was 120 million in 2013 and 125 million in 2014. What is its real GDP growth rate in 2014?

Answer 22

6.0%

Question 23

A nation’s average annual real GDP growth rate is 3%. Based on the “rule of 72,” the approximate number of years that it would take for this nation’s real GDP to double is

Answer 23

24 years

Question 24

The study of decision making at its core.

Answer 24

Economics

Question 25

Looking at the economy on a small scale level.

Answer 25

Microeconomics

Question 26

Looking at the economy on a large scale level.

Answer 26

Macroeconomics

Question 27

The foundation of all productive activity.

Answer 27

Resources

Question 28

Any item whether it is a gift of nature, results of production, or results of human effort that is used to produce goods and services.

Answer 28

Factors of Production

Question 29

Resources (4)

Answer 29

Land Labor Capital Entrepreneurial Ability

Question 30

Any natural resource used in production.

Answer 30

Land

Question 31

Any physical or mental activity used to produce goods or services.

Answer 31

Labor

Question 32

Any tool, machine, infrastructure, or knowledge used to produce goods and services.

Answer 32

Capital

Question 33

Any tangible item that can increase productivity.

Answer 33

Physical Capital

Question 34

The knowledge and the skills that people acquire in order to increase their productivity

Answer 34

Human Capital

Question 35

The talent or ability to combine land, labor, and capital to produce goods and services.

Answer 35

Entrepreneurial Ability

Question 36

Having unlimited wants and having limited resources.

Answer 36

Scarcity

Question 37

The value of your next best forgone alternative.

Answer 37

Opportunity Cost

Question 38

Assumptions for Decision Making

Answer 38

Self-Interest Marginal Decision Making Optimization (Getting the most benefit)

Question 39

Shown in a production frontier Straight line production Tradeoff is the same

Answer 39

Constant Opportunity Cost

Question 40

The advantage to produce a good or service at a lower relative opportunity cost than another producer.

Answer 40

Comparative Advantage

Question 41

A model that describes how goods, services, resources, and money flow back and forth in an economy.

Answer 41

Circular Flow Model

Question 42

Land, Labor, Capital, and Entrepreneurial Ability is bought and sold

Answer 42

Resource Market

Question 43

Brings together buyers and sellers for goods and services

Answer 43

Product Market

Question 44

Any place where or any mechanism by which buyers and sellers will interact to trade any goods, services or resources.

Answer 44

Market

Question 45

___ sets the price

Answer 45

The market

Question 46

A prince in economics which states that as the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa, all else held constant.

Answer 46

The law of demand

Question 47

3 factors of law of demand

Answer 47

Marginal benefit Purchasing Power Substitutes

Question 48

Increased preference for the good or service

Answer 48

Taste and Preferences

Question 49

A good for which there is a direct relationship for the demand for the good and income

Answer 49

Normal Good

Question 50

A good for which there is an inverse relationship for the demand for the good and income

Answer 50

Inferior Good

Question 51

If there is an increase in the number of buyers, it will shift the demand curve to the right and vice versa

Answer 51

Market size

Question 52

If you expect prices to go up in the future, demand now will increase

Answer 52

Expectations

Question 53

A good, service, or resource that is viewed as a replacement for one another

Answer 53

Substitutes

Question 54

A good, service, or resource that is used or consumed together

Answer 54

Complements

Question 55

A principle in economics that states that as the price of a good, service, or resource rises, the quantity supplied will increase, and vice versa, all else held constant

Answer 55

The law of supply

Question 56

A payment by businesses or firms to the government

Answer 56

Tax

Question 57

A payment by the government that the business doesn’t have to pay anything in return

Answer 57

Subsidy

Question 58

A minimum legal price at which a good, service, or resource can be sold

Answer 58

Price floor

Question 59

Taxes on quantities

Answer 59

Excise Tax

Question 60

A situation in which a government receives more revenue than it spends in a given fiscal year

Answer 60

Budget Surplus

Question 61

A situation in which a government receives less revenue than it spends in a given fiscal year

Answer 61

Budget Deficit

Question 62

A situation in which the government spends exactly what it collects in revenue in a given fiscal year

Answer 62

Balanced Budget

Question 63

Accumulation of all budget deficits and surpluses by a government

Answer 63

National Debt

Question 64

The market value of all final goods and services produced in an economy in a fixed period of time

Answer 64

Gross Domestic Product (GDP)

Question 65

The GDP measure in which quantities produced are valued at current year prices

Answer 65

Nominal Gross Domestic Product

Question 66

Any good or service that are sold to the end user and not used to produce something else for subsequent sale

Answer 66

Final Goods and Services

Question 67

Goods that are used to make or build another product that are subsequently sold

Answer 67

Intermediate Good

Question 68

GDP Formula

Answer 68

Consumption + Gross Investment + Government Purchases + Net Exports

Question 69

All expenditures made by households on goods and services, like clothing, food, electronics and recreation, during a given time period

Answer 69

Consumption

Question 70

Goods that have an average useful life of 3 years or more

Answer 70

Consumer Durables

Question 71

Goods that have an average useful life of less than 3 years

Answer 71

Consumer Nondurables

Question 72

Output often intangible of direct activities of another person

Answer 72

Services

Question 73

All final goods purchased by federal, state, and local governments during a given time period, as well as all final services purchased from labor resources

Answer 73

Government Purchases

Question 74

The dollar value of all new capital purchased (as investment) and the expansion of inventories in an economy during a fixed time period

Answer 74

Gross Investment

Question 75

Purchases by firms of new capital goods

Answer 75

Business Fixed Investments

Question 76

The purchases of new homes

Answer 76

Residential Investment

Question 77

Changes in inventories from one year to the next

Answer 77

Inventory Investment

Question 78

Inventory Investment Postive if.. Negative if..

Answer 78

Positive if firms produce more than they sell Negative if firms sell more than they produce

Question 79

The consumption of physical capital, or the value of capital that wears out, is used up, or becomes obsolete during a year

Answer 79

Depreciation

Question 80

The dollar value of all new capital purchased during a given time period.

Answer 80

Gross Investment

Question 81

Net investment =

Answer 81

Gross investment - Depreciation

Question 82

The difference between exports (goods made domestically and purchased by foreign consumers) and imports (goods made in other countries and purchased domestically).

Answer 82

Net Exports

Question 83

A positive net exports value: A negative net exports value:

Answer 83

Exports are greater than imports Imports are greater than exports

Question 84

An approach to measuring GDP that measures the value of all final goods and services in an economy during a time period using income generated

Answer 84

Income Approach

Question 85

Using the income approach you calculate GDP by including:

Answer 85

Indirect business taxes Depreciation Net foreign factor income National income

Question 86

Total payments to owners of resources plus profits and losses; the sum of rent, wages, interest, and profits and losses to sole proprietors and firms

Answer 86

National Income

Question 87

The difference between payments received from resources owned in foreign countries and income earned by people in foreign countries from resources own domestically

Answer 87

Net Foreign Factor Income

Question 88

The consumption of physical capital, or the value of capital that wears out, is used up, or becomes obsolete during a year

Answer 88

Depreciation

Question 89

Taxes paid by businesses, such as property taxes, sales taxes, excise taxes, license fees, and tariffs

Answer 89

Indirect Business Taxes

Question 90

A general increase in prices of goods and services

Answer 90

Inflation

Question 91

A metric that we use to keep prices constant and compare prices over time

Answer 91

Real GDP

Question 92

How do you calculate real prices?

Answer 92

Use the prices from year one with the year two quantities to be able to compare real production changes

Question 93

The profits and losses earned by individual proprietors

Answer 93

Proprietors Income

Question 94

Profits and losses of corporations

Answer 94

Corporate Income

Question 95

A price index based on all the goods and services that are counted as part of GDP

Answer 95

GDP Price Index

Question 96

Calculate GDP price index?

Answer 96

(Nominal GDP 1 / Real GDP 1) x 100

Question 97

Problems with GDP

Answer 97

``` Home production Underground economy Intangibles Resource Depletion Externalities ```

Question 98

The level of overall well-being enjoyed by an average individual, group, or society

Answer 98

Standard of Living

Question 99

An increase in real GDP or an increase in real GDP per capita

Answer 99

Economic Growth

Question 100

Economic Growth can occur if:

Answer 100

We obtain additional resources We invent new technologies Existing resources become more productive

Question 101

The rate of change of a variable over a specific period of time; usually expressed as a percentage change

Answer 101

Growth Rate

Question 102

Growth rate formula

Answer 102

(GDP2-GDP1)/GDP1 x 100