HW 1

A key theme fundamental to all of economics is that people have unlimited wants but face limited means to satisfy
them.
The problem of determining what goods and services society should produce exists because there are not enough
resources to provide all of the goods and services that people want to purchase.
What is not an example of a resource? Production
In Ventura County, California, strawberry production is limited by the number of acres available for agriculture
production. The statement that best represents this economic concept is resources are scarce.
You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The
statement that best represents this economic concept is: resources are scarce.
The study of a single firm and how it determines prices would fall under the study of: microeconomics.
Which are considered to be the two types of macroeconomic policies? monetary and fiscal policy
Monetary policy attempts to affect the overall level of spending in the economy through: changes in the quantity
of money or the interest rate.
The economic policy that uses changes in government spending and taxes to affect the overall spending in the
economy is known as: fiscal policy.
When building a model, economists: simplify reality in order to highlight what really matters.
An economy is efficient if it is: not possible to produce more of one good without producing less of another good.
If all of the opportunities to make someone better off (without making someone else worse off) have been
exploited, an economy is efficient.
If Poland decides to increase the production of steel—and decrease the production of vodka—the bowed-out
production possibility frontier would suggest that there will be a(n) increasing opportunity cost of producing more
steel.

Look at the Table: Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the
remaining time between study and leisure time. Suppose this student is studying 4 hours and spending 10 hours
doing leisure activities. What is true about this allocation of his scarce resources? This point is inside the
production possibility frontier.

Table: Production Look at the Table: Production Possibilities Schedule I. If the economy produces 10 units of capital
goods per period, it also can produce at most 4 units of consumer goods per period.

Table: Production Possibilities Schedule II) Look at the Table: Production Possibilities Schedule II. If the economy is
producing at alternative X, the opportunity cost of producing at Y instead of X is 6 units of consumer goods per
period.
(Figure: Strawberries and Submarines) Look at the Figure: Strawberries and Submarines. As the economy moves
from point A toward point D, it will find that the opportunity cost of each additional submarine: rises

(Figure: Tom's Production Possibilities) Look at the Figure: Tom's Production Possibilities. In the figure, which of
the point or points represents the combination of coconuts and fish feasible for Tom to produce at this time? A, B,
and C

Look at the Figure: Wine and Wheat. If this economy is producing at point A and it wants to produce at point B, it
needs to: use its existing resources efficiently.
Look at the Figure: Consumer and Capital Goods. Technological improvements will likely:
shift the production possibility frontier outward to Curve 2.
HW 2
A competitive market is one in which: there are many buyers and sellers of the same good or service.
Which of the following is NOT a key element of the supply and demand model? the production possibilities frontier
What describes the competitive market best? There are many buyers and sellers of the same good.
The downward slope of the demand curve indicates that, all other things being equal:
consumers will buy more of a good when its price decreases.
If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii?
The demand curve for hotel rooms will shift rightward.
An increase in the price of a good will cause: a movement up along a given demand curve.
If consumers expect that the price of coffee will be higher in the future: demand will increase and the demand
curve will shift to the right.
Suppose that the number of students enrolled at Big University decreases. In the local market for college
textbooks: demand will decrease.
There is a growing concern that global warming is changing people's tastes such that they are choosing to do
things that will reduce their individual emission of carbon into the atmosphere. How will this change in tastes
affect the demand for bicycles? It will increase the demand for bicycles, all other things being equal.
If the price of e-book textbooks decreases from $60 to $55, then: the quantity demanded of e-books will increase.
Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly
when new technology is used? The supply curve for kayaks will shift rightward.
How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore?
The supply curve for cotton T-shirts will shift leftward.
What happens in the market for wheat when dry winter weather results in a poor harvest?
The supply of wheat decreases; the demand remains unchanged.
What would be the dominant effect in the new-home market of an increase in the wages of skilled tradesmen who
work in housing construction? The supply of new homes would shift to the left.
Cocoa beans are an important input in chocolate production. We would expect that an increase in the price of
cocoa beans should (assume all other things being equal): shift the supply of Hershey's chocolate bars to the left.
A market supply curve is found by: horizontally summing the individual supply curves in the market.
Which of the following would cause a surplus of newsprint? The demand for newsprint decreases, and the price is
not permitted to change.
A shortage occurs when: the price of a good is held below the equilibrium price.
A surplus in the marketplace for cocoa beans will occur if: the price of cocoa beans is above the equilibrium price.
If the quantity demanded of cocoa beans is greater than the quantity supplied of cocoa beans, then: the
equilibrium price of cocoa beans will rise in the market.
Which of the following situations could account for the fact that ice cream prices have recently increased and that
consumption of ice cream has declined? The supply of ice cream has decreased.
Consider a BP gas station. As a result of an economic recession and consequent decreases in consumer incomes,
there will be a: leftward shift in the station's demand curve and lower gas prices.
Consider two competing gas stations located on opposite corners: BP and Shell. If BP lowers the price per gallon
that it charges customers, and Shell does not reduce its price, the effect on Shell is a: leftward shift in demand for
Shell's gas and a lower price for its gas.
If the supply curve shifts to the left and the demand curve does not change, then the equilibrium price: will
increase, and the quantity will decrease.
If the demand curve shifts to the left and the supply curve does not change, then the equilibrium price: and
quantity both will decrease.
If the price of Sharffen Berger Chocolate rises, what will happen in the market for Dagoba Chocolate? (Both are
high-quality specialty artisan chocolates.) The price of Dagoba Chocolate should rise.
Suppose you discovered that the equilibrium price of surfboards was falling and the equilibrium quantity was
rising. Which of the following is the most likely cause of this situation? The supply of surfboards is rising.
Suppose the demand for Manolo Blahnik shoes rises, but the supply rises as well. What can you conclude will
happen in the market for Manolo Blahnik shoes? The equilibrium quantity of Manolo Blahnik shoes in the market
will definitely rise.
If tennis rackets and tennis balls are complements, an increase in the price of tennis rackets will cause the
equilibrium price of tennis balls to decrease and the equilibrium quantity of tennis balls to decrease.
If beef and leather are complements in production, when the price of beef increases, what happens in the market
for leather? The price of leather decreases.
The NFL wants to give the “common fan” the opportunity to attend the Super Bowl, so it sets Super Bowl prices
“low”—tickets for a regular seat at Super Bowl XXXVII cost just $400. Scalpers, however, sell tickets for $1,500 or
more. If there are no transaction costs to selling a ticket, the true cost of a regular ticket to Super Bowl XXXVII is: at
least $1,500.

Look at the table The Market for Soda. If the government imposes a price ceiling of $0.50 per can of soda, the
quantity of soda demanded will be: 10 cans.

Look at the table Market for Apartments. If a government price ceiling of $700 is imposed on this market, an
inefficiency will result in the form of a: shortage of 0.6 million apartments.
Look at the figure Price Control. In the graph, one effective price ceiling would be the price indicated at point d and
a shortage would exist equal to the difference between points I and h.

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the
price ceiling: we say that the transaction takes place on a black market.
Price controls encourage black markets because: individuals can profit by illegal exchanges.

(Figure: Rent Controls) Look at the figure Rent Controls. Without rent controls, the equilibrium quantity is Q2.
If the minimum wage is a binding price floor, then: the number of workers who want to work will be greater than
the number of jobs available.
The persistent unwanted surplus that results from a price floor creates inefficiencies that include all of the
following except: inefficiently low quality.

(Figure: The Market for Round-Trip Airline Flights) Look at the figure The Market for Round-Trip Airline Flights. The
supply and demand graph represents the market for round-trip airline flights between Boston and New York.
Suppose the mayor of New York decides to limit the number of flights to Q1 to reduce air pollution. What is the
quota wedge? P1 – P3
HW 3
Which of the following is a microeconomic question rather than a macroeconomic question?
Will an increase in the cigarette tax cause a decrease in the number of packs sold?
The short-run alternation between economic downturns and recessions, then economic upturns and expansions is
known as the: business cycle.
The alternation between recessions and expansions is known as the: business cycle.
An economic expansion in the United States is typically associated with a(n): falling unemployment rate.
A period of falling real GDP is a(n): recession.
The most painful effect of a recession is: unemployment.
The recession that gave rise to the Great Depression lasted: 43 months
Economists use the term long-term growth to indicate: growth of the economy over several decades.
If wages grew at a 5% rate last year and average prices grew at a 3% rate, then the average worker is: better off.
Goods and services that are produced in a foreign country but consumed domestically are called: imports.
Households derive income from all EXCEPT: imports.
Wages, interest, profits, and rentare the forms of household income.
Total household income after paying taxes and receiving government transfers is known as: disposable income.

According to the Figure: Circular Flow Model, if the circular-flow model is in equilibrium (the sum of money flowing
into each box is equal to the sum of the money flowing out of that box), which is likely to happen if there is a
decrease in investment spending? an increase in the unemployment rate
An example of a government transfer is a(n): Social Security payment.
Which is an example of consumption expenditure? Stephanie bought a laptop for her brother.
Which would be classified as consumption? a new car purchased by an employee of a company for personal use
Households receive income in the form of all EXCEPT: investment spending.

According to the Figure: Expanded Circular-Flow Model, how much is total government spending? $220
 According to the Figure: Expanded Circular-Flow Model, which is NOT a sector of the economy shown in the
circular-flow model? factor markets
To compare economic performance between years, economists most often use: GDP.
Consider an economy that produces only two goods: DVDs and DVD players. Last year, 10 DVDs were sold at $20
each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players
were sold at $50 each. Nominal GDP this year is: $650.

A simple economy produces only peanut butter and jelly. Using the data in the Table: Peanut Butter and Jelly
Economy for 2011, nominal GDP was 525 and real GDP was 450.

Between 2010 and 2011 in the Table: Peanut Butter and Jelly Economy, nominal GDP: increased by 31.25 percent.
Real GDP is: the value of the production of all final goods and services adjusted for price changes.
If nominal GDP of 2012 is higher than nominal GDP of 2011, we can state that: production or prices or both are
higher in 2012 than in 2011.
Government economists have adopted a new method of calculating the change in real GDP known as the chain-
linking method, which uses the average between the GDP growth rate calculated using an early base year and the
GDP growth rate calculated using a late base year.
Real GDP tends to overstate our economic well-being by including which? expenditures on crime prevention,
payments for cleaning up the environment, and repairs to structures destroyed by storms
HW 4
According to the Table: Population Data for Estill County, if marginally attached workers are included in the labor
force and in the unemployment rate, the unemployment rate in this economy is: 23.1 percent.
To be counted as unemployed, one must: be out of work and be actively looking for a job.
To be classified as unemployed, a person must be: not working and actively looking for a job in the last four weeks.
The statistics and data on unemployment are gathered and reported: monthly.
A survey reveals that on a small island 40 people have jobs, 10 people are looking for jobs, and 30 people are
neither working nor looking for work. The unemployment rate on the island is: 20 percent.
Which calculation is correct? Unemployment rate = unemployed / labor force x 100

Using the data from the Table: Labor Force Data, suppose the labor force participation rate is 70 percent. The
number of unemployed adults is: 8 million.
Discouraged workers are those individuals who: have given up looking for a job.
Donna was laid off by her employer at the beginning of 2011. She looked for a job for three months, but could not
find anything suitable. She then decided to volunteer for a soup kitchen and stopped looking for a job. Donna is
considered to be: a discouraged worker.
Economists claim that the unemployment rate can understate the true level of unemployment because none of
the following groups are included, EXCEPT: workers without jobs who have looked for work in the last four weeks.
When the unemployment rate is very low, most of the unemployment tends to be: frictional.
An example of the frictionally unemployed is a(n): real estate agent who leaves a job in Texas and searches for a
similar, higher-paying job in California.
Most economists agree that sufficiently high minimum wage laws: actually create more unemployment.
The labor supply curve is positively sloped because: more people are willing to work at higher wages than at lower
wages.

Look at the Figure: The Minimum Wage on the labor market. What is the quantity of labor supplied at a binding
minimum wage of P3? Q4.
Cyclical unemployment: rises during a recession.
In February of 2012, the Bureau of Labor Statistics calculated the unemployment rate to be 8.3 percent. If frictional
unemployment was 2 percent and structural unemployment was 3.2 percent, then cyclical unemployment would
be: 3.1 percent.
Generous unemployment benefits are likely to have which consequence? an increase in the unemployment rate
According to the Congressional Budget Office, the natural rate of unemployment: rose until the end of the 1970s
and has declined since then.
Refer to the Figure: The Labor Market. What will be the level of employment if firms decide to pay an efficiency
wage of $16? 80,000
Over the past year, Eli has been working very hard. His employer has taken notice and is giving Eli a 6 percent raise
in salary. During this past year, overall prices in the economy have increased by 4 percent. Given this information,
Eli's real wage has: increased by 2 percent.
If the U.S. dollar was replaced with a “new dollar” at an exchange rate of 1 new dollar for 5 old dollars, then a loan
of $10,000 would become a debt of 2000 new dollars.
If the price level increases, real wages will: decrease.
Suppose that a country has a progressive income tax code, where taxable income is calculated in nominal terms
but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with
inflation will find that over time he or she will pay: a higher percentage of income in taxes over time.
Unit-of-account costs refer to the: loss of the reliability of money as a relative unit of measurement.
During Brazil's hyperinflation of the 1990s, the economy lost real resources when the banking sector grew so large
in order to cope with the consequences of the high rate of inflation. Suppose that the nominal rate of interest is 7
percent and the inflation rate is 3 percent. The real rate of interest is equal to: 4 percent.
If the actual inflation rate is higher than expected, borrowers gain at the expense of lenders.
The measure that summarizes the aggregate price level is: a price index.
In the country of Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in
2011. Based on this information and considering 2009 to be the base year, the price index in 2011 was: 123.07.
In the country of Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in
2011. Based on this information and considering 2009 as the base year, inflation from 2009 to 2011 was: 23.07
percent.

Consider the information in the Table: Price Index provided. What is the inflation rate between the years 2010 and
2011? 6.8 percent
The annual percent change in an official price index is called the: inflation rate.
The CPI reflects: changes in the prices of goods and services typically purchased by consumers.
Which category accounts for the largest portion of the CPI market basket? housing
The GDP deflator is equal to: nominal GDP / real GDP × 100
The major difference between the CPI and the producer price index is that the producer price index: is based on
the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically
purchased by consumers.
The producer price index is often regarded as a warning sign of inflation because: commodity producers are
relatively quick to raise prices.
4.1% unemployment 10% during peak 25% during recession 25% in Greece Inflation rate 2% 10% Inflation rate 70s
Deflation in 2009 2008 housing bubble 2001 .com 1991 savings and loans crisis 1981 double dip recession
1974 Iran revolution