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2011-11-02 22:30:29
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Duel credit Econ
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  1. What are the two main characteristics of a perfectly competitive market?
  2. The goods offered for sale are all the same, and the buyers and sellers are so numerous that no one buyer or seller can influence the price.
  3. Explain the law of demand.
  4. Other things equal, price and quantity demanded of a good are negatively related.
  5. What are the variables that should affect the amount of a good that consumers wish to buy, other than its price?
    Income, prices of related goods, tastes, expectations, and number of buyers in the market.
  6. What is the difference between a normal good and an inferior good?
  7. When income rises, demand for a normal good increases or shifts right. When income rises, demand for an inferior good decreases or shifts left.
  8. Explain the law of supply.
    Other things equal, price and quantity supplied of a good are positively related.
  9. What are the variables that should affect the amount of a good that producers wish to sell, other than its price?
    The variables are input prices, technology, expectations, and number of sellers in the market.
  10. Suppose suppliers of corn expect the price of corn to rise in the future. How would this affect the supply and demand for corn and the equilibrium price and quantity of corn?
    The supply of corn in today’s market would decrease (shift left) as sellers hold back their offerings in anticipation of greater profits if the price rises in the future. If only suppliers expect higher prices, demand would be unaffected. The equilibrium price would rise and the equilibrium quantity would fall.
  11. f there is a surplus of a good, is the price above or below the equilibrium price for
    that good?
    The price must be above the equilibrium price.
  12. Suppose there is an increase in consumers’ incomes. In the market for automobiles(anormal good), does this event cause an increase in demand or an increase in quantitydemanded? Does this cause an increase in supply or an increase in quantity supplied?Explain.
  13. There would be an increase in the demand for automobiles, which means that the entire demand curve shifts to the right. This implies a movement along the fixed supply curve as the price rises. The increase in price causes an increase in the quantity supplied of automobiles, but there is no increase in the supply of automobiles
  14. Suppose there is an advance in the technology employed to produce automobiles. In the market for automobiles, does this event cause an increase in supply or an increase
    in the quantity supplied? Does this cause an increase in demand or an increase in the
    quantity demanded? Explain.
  15. There would be an increase in the supply of automobiles, which means that the entire supply curve shifts to the right. This implies a movement along the fixed demand curve as the price falls. The decrease in price causes an increase in the quantity demanded of automobiles, but there is no increase in the demand for automobiles.
  16. A perfectly competitive market has

    a. only one seller.
    b. at least a few sellers.
    c. many buyers and sellers.
    d. firms that set their own prices.
    e. none of the above.
    c
  17. If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

    a. substitutes.
    b. complements.
    c. normal goods.
    d. inferior goods.
    e. none of the above.
    A
  18. The law of demand states that an increase in the price of a good

    a. decreases the demand for that good.
    b. decreases the quantity demanded for that good.
    c. increases the supply of that good.
    d. increases the quantity supplied of that good.
    e. does none of the above.
    B
  19. The law of supply states that an increase in the price of a good

    a. decreases the demand for that good.
    b. decreases the quantity demanded for that good.
    c. increases the supply of that good.
    d. increases the quantity supplied of that good.
    e. does none of the above.
    D
  20. If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping
    equipment is

    a. a complementary good.
    b. a substitute good.
    c. a normal good.
    d. an inferior good.
    e. none of the above.
    D
  21. A monopolistic market has

    a. only one seller.
    b. at least a few sellers.
    c. many buyers and sellers.
    d. firms that are price takers.
    e. none of the above.
    A
  22. Which of the following shifts the demand for watches to the right?

    a. a decrease in the price of watches
    b. a decrease in consumer incomes if watches are a normal good
    c. a decrease in the price of watch batteries if watch batteries and watches are
    complements
    d. an increase in the price of watches
    e. none of the above
    C
  23. All of the following shift the supply of watches to the right except

    a. an increase in the price of watches.
    b. an advance in the technology used to manufacture watches.
    c. a decrease in the wage of workers employed to manufacture watches.
    d. manufacturers’ expectations of lower watch prices in the future.
    e. All of the above cause an increase in the supply of watches.
    A
  24. If the price of a good is above the equilibrium price,

    a. there is a surplus and the price will rise.
    b. there is a surplus and the price will fall.
    c. there is a shortage and the price will rise.
    d. there is a shortage and the price will fall.
    e. the quantity demanded is equal to the quantity supplied and the price remains
    unchanged.
    B
  25. If the price of a good is below the equilibrium price,

    a. there is a surplus and the price will rise.
    b. there is a surplus and the price will fall.
    c. there is a shortage and the price will rise.
    d. there is a shortage and the price will fall.
    e. the quantity demanded is equal to the quantity supplied and the price remains
    unchanged.
    C
  26. If the price of a good is equal to the equilibrium price,

    a. there is a surplus and the price will rise.
    b. there is a surplus and the price will fall.
    c. there is a shortage and the price will rise.
    d. there is a shortage and the price will fall.
    e. the quantity demanded is equal to the quantity supplied and the price remains
    unchanged.
    E
  27. An increase (rightward shift) in the demand for a good will tend to cause

    a. an increase in the equilibrium price and quantity.
    b. a decrease in the equilibrium price and quantity.
    c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
    d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
    e. none of the above.
    A
  28. A decrease (leftward shift) in the supply for a good will tend to cause

    a. an increase in the equilibrium price and quantity.
    b. a decrease in the equilibrium price and quantity.
    c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
    d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
    e. none of the above.
    C
  29. Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the

    a. equilibrium quantity to rise and the equilibrium price to rise.
    b. equilibrium quantity to rise and the equilibrium price to fall.
    c. equilibrium quantity to rise and the equilibrium price to remain constant.
    d. equilibrium quantity to rise and the change in the equilibrium price to be
    ambiguous.
    e. change in the equilibrium quantity to be ambiguous and the equilibrium price to
    rise.
    D
  30. Suppose there is an increase in both the supply and demand for personal
    computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the

    a. equilibrium quantity to rise and the equilibrium price to rise.
    b. equilibrium quantity to rise and the equilibrium price to fall.
    c. equilibrium quantity to rise and the equilibrium price to remain constant.
    d. equilibrium quantity to rise and the change in the equilibrium price to be
    ambiguous.
    e. change in the equilibrium quantity to be ambiguous and the equilibrium price to
    fall.
    B
  31. Which of the following statements is true about the impact of an increase in the price of lettuce?

    a. The demand for lettuce will decrease.
    b. The supply of lettuce will decrease.
    c. The equilibrium price and quantity of salad dressing will rise.
    d. The equilibrium price and quantity of salad dressing will fall.
    e. Both a and d are true.
    D
  32. suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?
    a. Price will increase; quantity is ambiguous.
    b. Price will increase; quantity will increase.
    c. Price will increase; quantity will decrease.
    d. Price will decrease; quantity is ambiguous.
    e. The impact on both price and quantity is ambiguous
    A
  33. Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?

    a. There is an increase in the demand for apples and an increase in the quantity
    supplied of apples.
    b. There is an increase in the demand and supply of apples.
    c. There is an increase in the quantity demanded of apples and in the supply for
    apples.
    d. There is an increase in the demand for apples and a decrease in the supply of
    apples.
    e. There is a decrease in the quantity demanded of apples and an increase in the
    supply for apples.
    A
  34. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

    a. The impact on both price and quantity is ambiguous.
    b. Price will increase; quantity is ambiguous.
    c. Price will increase; quantity will increase.
    d. Price will increase; quantity will decrease.
    e. Price will decrease; quantity is ambiguous.
    B
  35. An inferior good is one for which an increase in income causes a(n)

    a. increase in supply.
    b. decrease in supply.
    c. increase in demand.
    d. decrease in demand.
    D
  36. Why does income = expenditure = GDP?
    Because the income of the seller equals the expenditure of the buyer and GDP can be measured with either one.
  37. Define GDP and explain the important terms in the definition.
    Market value of all final goods and services produced within a country in a given period of time. “Market value” = price paid, “of all” = all legal production, “final” = to end users, “goods and services” = includes services, “produced” = no used items, “within a country” = inside borders, “in a given period” = per quarter or year.
  38. What are the components of expenditure? Provide an example of each.
    Consumption (food), investment (factory), government purchases (military equipment), net exports (sale of a Ford to France minus purchase of a Toyota produced in Japan).
  39. Provide an example of a transfer payment. Do we include it in GDP? Why or why not?
    Social Security payments. No, because the government received no good or service in return.
  40. If nominal GDP in 2010 exceeds nominal GDP in 2009, did real output rise? Did prices rise?
    We can’t be certain which rose, prices or real output, because an increase in either prices or real output will cause nominal output to rise.
  41. If real GDP in 2010 exceeds real GDP in 2009, did real output rise? Did prices rise?
    Real output rose because the value of output in each year is measured in constant base-year prices. We have no information on prices.
  42. If you buy a $20,000 Toyota that was produced entirely in Japan, does this affect U.S. GDP? Show how this transaction would affect the appropriate expenditure categories that make up GDP.
    No. Consumption would increase by $20,000 and net exports would decrease by $20,000. As a result, U.S. GDP is unaffected.
  43. Explain the difference between GDP and GNP. If the residents of the United States generate as much production in the rest of the world as the rest of the world produces in the United States, what should be true about U.S. GDP and GNP?
    GDP is the production within the borders of the United States. GNP is the production of Americans no matter where the production takes place. They should be equal.
  44. Which contributes more when measuring GDP, a new diamond necklace purchased
    by a wealthy person or a soda purchased by a thirsty person? Why?
    A diamond necklace because GDP measures market value.
  45. If your neighbor hires you to mow her lawn instead of doing it herself, what will
    happen to GDP? Why? Did output change?
    GDP will rise because the mowing of the lawn was a market transaction. However, output didn’t really rise.
  46. An example of a transfer payment is

    a. wages.
    b. profit.
    c. rent.
    d. government purchases.
    e. unemployment benefits.
    E
  47. The value of plant and equipment worn out in the process of manufacturing goods and services is measured by

    a. consumption.
    b. depreciation.
    c. Net national product.
    d. investment.
    e. intermediate production.
    B
  48. Which of the following would be excluded from 2009 GDP? The sale of

    a. a 2009 Honda made in Tennessee.
    b. a haircut.
    c. a realtor’s services.
    d. a home built in 2008 and first sold in 2009.
    e. All of the above should be counted in 2009 GDP.
    D
  49. Gross domestic product can be measured as the sum of

    a. consumption, investment, government purchases, and net exports. b. consumption, transfer payments, wages, and profits.
    c. investment, wages, profits, and intermediate production.
    d. final goods and services, intermediate goods, transfer payments, and rent.
    e. net national product, gross national product, and disposable personal income.
    A
  50. U.S. gross domestic product (in contrast to gross national product) measures the
    production and income of

    a. Americans and their factories no matter where they are located in the world.
    b. people and factories located within the borders of the United States.
    c. the domestic service sector only.
    d. the domestic manufacturing sector only.
    e. none of the above.
    B
  51. Gross domestic product is the sum of the market value of the

    a. intermediate goods.
    b. manufactured goods.
    c. normal goods and services.
    d. inferior goods and services.
    e. final goods and services.
    E
  52. If nominal GDP in 2010 exceeds nominal GDP in 2009, then the production of output must have

    a. risen.
    b. fallen.
    c. stayed the same.
    d. risen or fallen because there is not enough information to determine what
    happened to real output.
    D
  53. If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is

    a. $50.
    b. $100.
    c. $500.
    d. $600.
    e. $650.
    C
  54. GDP would include which of the following?

    a. housework
    b. illegal drug sales
    c. intermediate sales
    d. consulting services
    e. the value of taking a day off from work
    D
  55. Real GDP is measured in ______ prices while nominal GDP is measured in ______ prices.

    a. current year; base year
    b. base year; current year
    c. intermediate; final
    d. domestic; foreign
    e. foreign; domestic
    B
  56. If U.S. GDP exceeds U.S. GNP, then

    a. foreigners are producing more in the United States than Americans are producing in foreign countries.
    b. Americans are producing more in foreign countries than foreigners are producing
    in the United States.
    c. real GDP exceeds nominal GDP.
    d. real GNP exceeds nominal GNP.
    e. intermediate production exceeds final production.
    A
  57. U.S. GDP would exclude which of the following?

    a. lawyer services purchased by a home buyer
    b. lawn care services purchased by a homeowner
    c. a new bridge purchased by the state of Texas
    d. cotton purchased by Lee Jeans
    e. the purchase of a new Mazda produced in Illinois
    D
  58. How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts?

    a. Investment increases by $40,000 and net exports increase by $40,000.
    b. Consumption increases by $40,000 and net exports decrease by $40,000.
    c. Net exports decrease by $40,000.
    d. Net exports increase by $40,000.
    e. There is no impact because this transaction does not involve domestic
    production.
    20. If your grandparents buy
    B
  59. If your grandparents buy a new retirement home, this transaction would affect
    a. consumption.
    b. investment.
    c. government purchases.
    d. net exports.
    e. none of the above.
    B

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