QUIZ,ASSIGNMENT,EXAM

ECONS 1

 Lesson quiz 1 (20%) 20 MAR 2013, WED Assignments (30%) 10 APR 2013, WED Final Exam (50%) 21 APR 2013, SUNDAY 7-10PM

Assignment Submission
Soft Copy in ONE PDF Rename your assignment to : Soft Copy Submit through email on or before deadline
PTBA5A_YOUR NAME

Late submission Submit through email. Marks will be deducted accordingly Do not cc program management for assignment submission

Email : [email protected] Subject : PTBA5A_YOUR NAME ECON ASSIGNMENT ATTACH YOUR PDF FILE

Assignment Format
1. 2. 3. 4. 5. Kaplan Assignment Cover Page Newspaper Article Content Page on Economics Concepts used Assignment References

Economics 1Assessment Instructions Assessment 2: Individual Assignment, 30% of Module Weighting 1.0) RELEVANT MODULE LEARNING OUTCOMES:

A. Analyse a range of current economic issues and problems. B. Develop and communicate economic arguments in a variety of forms. C. Be able to make effective presentations of economic arguments. D-J The nature of this assignment is such that students will analyse a particular newspaper article and, depending on the subject matter, will respond to one or more of the remaining outcomes. 1.1) EMBEDDED SKILLS INCLUDE: The ability to conduct research. The ability to analyse data and information. The ability to think and read critically.

2.0)

INSTRUCTIONS:

i) Assignment Submission: All assignment copies are to be handed in to lecturers on the specific due date agreed upon. i) Assignment Brief: Working individually, you will either search through and find OR be allocated by your lecturer ONE (1) newspaper article published no earlier than February 1, 2013 that is relevant to the economics concepts discussed in class. Either way, the chosen article has to be approved by your Lecturer. Once this is confirmed, your task is to write an essay of 1,100 words that summarises the key facts of the article and, more importantly, analyses, explains, and communicates how the article relates to the economic concepts and models studied in the Economics 1 module. The article must fulfill the following requirements: It must concern news events which you may consider include events relating to inflationary economy, recessionary economy, fiscal policy, monetary policy, demand/supply concepts, price elasticity as well as market structure. More marks will be awarded for reports which provide more detailed discussion and indepth analysis with adequate referencing to the economic concepts and models.

iii)

Assignment Format:

The essay should be presented as follows: Introduction - Outline your reasons for selecting the article (about 100 words) and summarise the key economic points covered by the article (about 100 words). Body - Identify and discuss the economics concepts and models from the Economics 1 module that are suitable to explain the news article and relate and apply these economics concepts and models to the article to show your understanding of the news (about 800 words). Despite being an essay, diagrams are permitted to help explain concepts Conclusion - Argue the social and economic implications of the economic event or other logical consequences of the news event (about 100 words) Referencing - All sources referred to in your essay, including any diagrams, must be referenced to in-text and be included in a full reference list at the end of the assignment, according to the APA system of referencing. Use the following Kaplan resource to assist you to do this accurately and consistently: All KAPLAN Higher Education Diploma and Diploma Bridging modules use the APA referencing and citation format. Please make yourself familiar with this style at the beginning of your studies so you are able to use it to keep track of source material during research. COMPULSORY GUIDE TO READ AND APPLY IN ALL ACADEMIC WRITING: KAPLAN Academic Works and APA Guide: Follow this link to download and savehttp://kaplandiploma.s3.amazonaws.com/Kaplan_Singapore_Academic_Works_and_A PA_Guide_2013_v2.pdf

iv)

Assignment Style

The reference above will also supply you with the Assignment Style rules followed in Kaplan. In short, the main things to apply are as follows: 1. 2. 3. 4. 5. v) Write your name clearly on the cover page using the Lecturers Comment Form Your assignment should be type-written. Spacing 1.5 with font size 12 using Arial font style. Include page no. Include a Reference Page at the end of your assignment. Policies The penalties for plagiarism and collusion per Kaplan Singapore Academic Policy (found in your Student Handbook) will apply for any breaches. Late submission of assignment copies handed in to program managers will have marks deducted in accordance to the Kaplan Singapore late submission policy.

Assignment Guidelines
1. Describe the essence of the article and introduce the background of the topic 2. Describe the issue / problem that you would be addressing 3. What economic concepts are related to the issues you are addressing? Analyze the article using economic models and concepts 4. Propose some Economic solutions to the issue discussed 5. Conclusion / Summary 6. References

Articles online
Channelnewsasia Today Online My Paper Straits Times

TUTORIALS

Exam

INTRODUCTION TO ECONOMICS

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) From 8 P.M. to 10 P.M., Susan can attend a movie, study, or talk with friends. Suppose that Susan decides to go to the movie but thinks that, if she hadn't, she would otherwise have talked with friends. The opportunity cost of attending the movie is A) studying. B) talking with friends and studying. C) talking with friends. D) two hours of time. 2) When firms in an economy start producing more computers and fewer televisions, they are answering the ________ part of one of the two big economic questions. A) "for whom" B) "what" C) "where" D) "when" 3) When China builds a dam using few machines and a great deal of labor, it is answering the ________ part of one of the two big economic questions. A) "for whom" B) "how" C) "where" D) "what" 4) The fact that people with higher incomes get to consume more goods and services addresses the ________ part of one of the two big economic questions. A) "when" B) "where" C) "for whom" D) "how" 5) Opportunity cost means the A) accounting cost minus the marginal cost. B) monetary costs of an activity. C) highest-valued alternative forgone. D) accounting cost minus the marginal benefit. 6) All economic questions arise because we A) want more than we need. B) want more than we can get. C) have an abundance of resources. D) have limited wants that need to be satisfied. 7) Scarcity is a situation in which A) people can satisfy all their wants. B) most people can get only bare necessities. C) people cannot satisfy all their wants. D) some people can get all they want and some cannot. 8) Which of the following is NOT a factor of production? A) the wages paid to workers. B) the water used to cool a nuclear power plant. C) the management skill of a small business owner. D) the effort of farmers raising cattle. 1)

2)

3)

4)

5)

6)

7)

8)

9) Dell Computers decides to produce PCs and sell them directly over the Internet and via Best Buy. This is an example of A) scarcity. B) a macroeconomic decision. C) a microeconomic decision. D) incentives. 10) Consider the following events: i. Samsung hires associates to market their HDTV sets to Best Buy. ii. The Dallas Cowboys build a new football stadium. iii. Ebay fires 10 percent of its workforce. iv. Ten million stocks were traded on the New York Stock Exchange in one day. v. Pennsylvania builds a new state park.
Which of the events describe use of factors of production? A) i and iii only B) i, ii, iii, and v C) ii, iv, and v

9)

10)

D) iv only

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 11) What do economists mean when they discuss "scarcity"? 12) What is the relationship between wants, factors of production, scarcity, and choices? Discuss the relationship for an individual and for a society. 13) Explain why both rich and poor people experience scarcity. 14) What is the difference between scarcity and poverty? 15) Define economics and describe its branches of study. 16) What is the difference between microeconomics and macroeconomics? Give an example of an issue each studies. 17) Below is a student's answer to the question "What is microeconomics?" If you were the instructor, how would you correct the student's answer? "Microeconomics is the study of how government influences the choices made by individuals and businesses and of the performance of the whole national economy." 18) China's population is about 1.5 billion, while the population of the United States is about 300 million. This fact means that China has much more human capital than the U.S. does. True or false? Explain your answer. 19) Explain what entrepreneurship is and why it is considered a factor of production. 20) An analyst on a local news channel argues that the recent corporate scandals "demonstrated very clearly that self interest always contradicts social interest." Do you agree or disagree? Substantiate your answer. 21) What is a tradeoff? Give an example. 22) What is opportunity cost?

23) Your friend is preparing for this exam and in your practice session makes the following statement: "Instead of attending microeconomics class for two hours, Kiki could have played tennis or watched a movie. Therefore, the opportunity cost of attending class is the tennis and the movie she had to give up." Is your friend's analysis correct or not? Explain your answer. 24) Rather than go out to eat by yourself, you decide to stay at home and fix dinner for yourself and your two roommates. Your roommates applaud your decision. Your first roommate tells you that your decision to eat at home has no opportunity cost because you already have all the dinner ingredients in your pantry. Is this roommate's comment correct? 25) Define marginal cost and marginal benefit. 26) In New State, the bottling law requires that people get a refund of five cents when they return an empty bottle or can. Why does the state pay people to return bottles? In your answer, be sure to mention the role played by incentives. 27) If the government raises the tax on cigarettes, what is the effect on people's incentives and choices? 28) "The difference between positive and normative statements is that a positive statement is always true while a normative statement might or might not be true." True or false? Explain. 29) Two economists can agree that raising the minimum wage creates unemployment yet one might argue that raising the minimum wage is a good policy and the other that it is a bad policy. Why can this difference exist? Be sure to use the terms positive and normative in your answer. 30) Explain whether the statement, "There is life on Mars," is a normative or positive statement. 31) Explain whether the statement, "Hillary Clinton was elected President of the United States in 2008," is a normative or positive statement. 32) Explain whether the statement "The government should increase tariffs on Japanese cars to protect the American car industry from competition," is a normative or positive statement.

Exam

PPF

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The production possibilities frontier is A) downward sloping and reflects unlimited choices. B) downward sloping and reflects tradeoffs in choices. C) upward sloping and reflects unlimited choices. D) upward sloping and reflects tradeoffs in choices. 2) Marginal cost is the opportunity cost A) of a good or service divided by the number of units produced. B) that arises from producing one more unit of a good or service. C) of a good or service that exceeds its benefit. D) that your activity imposes on someone else. 1)

2)

Quantity of beans (bushels) 5 4 8 2 1 0

Quantity of carrots (bushels) 0 5 9 12 14 15

3) The table above represents different points along a production possibilities curve. What is the marginal cost of moving from 2 bushels to 3 bushels of beans? A) 12 bushels of carrots per bushel of beans B) 3 bushels of carrots per bushel of beans C) 9 bushels of carrots per bushel of beans D) 21 bushels of carrots per bushel of beans

3)

4) Victor currently produces nuts and bolts at point a in the figure. Victor's marginal cost of producing an additional nut is ________. A) 8/6 bolts per nut B) 1 bolt per nut C) 8 bolts per nut D) 1/2 bolt per nut

4)

5) In the figure above, the marginal cost of producing a computer A) stays the same as more computers are produced. B) is the same as the marginal cost of producing a television set. C) decreases as more computers are produced. D) increases as more computers are produced.

5)

6) An expansion of the production possibilities frontier is A) a free gift of nature. B) something that has occurred only rarely in history. C) proof that scarcity is not a binding constraint. D) called economic growth. 7) Technological progress makes the production possibilities frontier A) become less linear and more bowed. B) become more linear and less bowed. C) shift outward from the origin. D) shift inward toward the origin.

6)

7)

8) In the figure above, the marginal cost of the second computer is A) 3 television sets per computer. B) 5 television sets per computer. C) 2 television sets per computer. D) 30 television sets per computer. 9) In the figure above, the marginal cost of the fifth computer is A) 35 television sets per computer. B) 0 television sets per computer. C) 4 television sets per computer. D) 20 television sets per computer. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 10) A production point beyond the production possibilities frontier represents what? 11) Explain how the production possibilities frontier illustrates scarcity. 12) "If Mexico is currently operating at a point beyond its production possibilities frontier, then there are unemployed resources in Mexico." Is this statement true or false? Briefly explain your answer. 13) "If Mexico is currently operating at a point inside its production possibilities frontier, then there are unemployed resources in Mexico." Is this statement true or false? Briefly explain your answer. 14) Are all points inside the production possibilities frontier unattainable? 3

8)

9)

15) In the movie Cast Away, Tom Hanks plays a FedEx efficiency expert stranded on a deserted island. While on the island, he divides his time between catching fish, gathering coconuts, painting, and building a raft. Suppose that these were Mr. Hanks' only activities. Did he face an opportunity cost from pursuing any of these activities? Why or why not? 16) Explain the connection between opportunity cost and the PPF. 17) Explain why the production possibilities frontier bows outward. 18) What economic concepts are represented in the production possibilities model? 19) When economists state that the opportunity cost of a product increases as more of it is produced, what do they mean? What is the opportunity cost? 20) What is the relationship between the bowed out shape of the production possibilities frontier and the increasing opportunity cost of a good as more of it is produced? 21) Why does the marginal benefit curve have a negative slope? 22) Explain the difference between marginal cost and marginal benefit. 23) Compare and contrast production efficiency and allocative efficiency. 24) "Allocative efficiency in the production of cherries means that consumers can eat all of the cherries they desire." Is this statement true or false? 25) "If an economy is producing at a point on its PPF, it has achieved allocative efficiency." True or false? Explain. 26) "Allocative efficiency requires that the maximum number of people have access to all of the goods and services that our economy produces." Is this statement true or false? Explain your answer. 27) What factors generate economic growth? 28) What is comparative advantage? Give an example. 29) Why is it likely that the United States has an absolute advantage in goods and yet it still ends up importing them from other countries? 30) The United States has an absolute advantage in producing sugar over all of the other sugar producing countries. Does this fact mean that we should not import any sugar from the other countries? 31) Why does it make sense for economies to specialize according to comparative advantage and trade? 32) "The United States is more productive in most activities than are most of other countries because it has an absolute advantage in the production of most goods and services. Therefore we should restrict international trade as it only benefits other countries at the expense of the United States." Comment on this statement. 33) How do property rights help organize production and trade? 4

Exam

DEMAND AND SUPPLY

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity ________. A) falls; decreases B) falls; increases C) rises; increases D) rises; decreases 2) The number of firms producing computer memory chips decreases. As a result, the price of a memory chip ________ and the quantity of memory chips ________. A) falls; decreases B) rises; decreases C) rises; increases D) falls; increases 1)

2)

3) The figure above shows the demand for fruit snacks. Which movement reflects an increase in the price of a substitute for fruit snacks? A) from point a to point d B) from point a to point e C) from point a to point c D) from point a to point b 4) The figure above shows the demand for fruit snacks. Which movement reflects how consumers would react to an increase in the price of a non-fruit snack? A) from point a to point b B) from point a to point e C) from point a to point c D) from point a to point d

3)

4)

5) The above figure shows the market for hamburger. Which figure shows the effect of an announcement by the U.S. Food and Drug Administration (FDA) that eating hamburger causes early death? A) Figure A B) Figure B C) Figure C D) Figure D 6) There are 72,922 seats in Lambeau Field where the Green Bay Packers play football. The Packers have sold out their season tickets since 1960. There are about 80,000 people on the waiting list to buy season tickets in 2010. This means that at the price in 2010, the A) quantity demanded of Packer season tickets is about 153,000. B) demand for Packer season tickets is 72,922. C) quantity demanded of Packer season tickets is about 80,000. D) quantity demanded of Packer season tickets is 72,922. 7) Which of the following leads to a movement along the demand curve for spinach but does not shift the demand curve for spinach? A) A rise in the price of spinach. B) An increase in income for all spinach lovers. C) A newly discovered health benefit from eating spinach. D) An increase in the price of broccoli, a substitute for spinach. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 8) What is the law of demand? 9) What leads to a decrease in the quantity demanded of a good or service?

5)

6)

7)

10) An economist says: "The demand curve has two interpretations." What does the economist mean? 11) List the factors change demand and shift the demand curve. Tell what happens to demand and the demand curve when there is an increase in the factor. 12) Computers are a complement to computer software. Suppose the price of a computer falls. How does this fall in price affect the demand for computer software and the demand curve for computer software? 13) What is the difference between a normal good and an inferior good? Give an example of each. 14) Consumers' income declines and, as a result, the demand for margarine increases. Is margarine a normal or an inferior good? Explain. 15) Explain the difference between a change in demand and a change in quantity demanded. What leads to each of these changes? 16) Your friend Tony opened a pizzeria. You helped him to advertise his pizza, which is in fact the best pizza in town. As a result, the demand for Tony's pizza increases and your friend, noticing lines of customers, raises the price of his pizza. But then he fears that the higher price will cause demand to decline, which will cause the price to drop. Is Tony right in his analysis of the situation? Explain. 17) An economist says: "The supply curve has two interpretations." What does the economist mean? 18) List the factors that change supply and shift the supply curve. Tell what happens to supply and the supply curve when there is an increase in the factor. 19) What are substitutes in production? 20) Suppose that the number of companies selling computer software decreases. How does this change affect the supply of computer software and the supply curve of computer software? 21) Suppose that the technology used to produce computers advances. How does this change affect the supply of computers and the supply curve of computers? 22) What leads to a decrease in the quantity supplied of a good or service? 23) What is the difference between quantity supplied and supply? 24) Explain how price can be a regulator, that is, how it can coordinate the plans of buyers and sellers. 25) When does a shortage occur? 26) When does a surplus occur? 27) At prices above the equilibrium price, what occurs? 28) When the demand for blue jeans increases, what happens next?

29) Why does an increase in the supply of computers lead to a lower price for a computer? 30) "If the price of crude oil falls, the demand for gasoline will increase, so people will by more gas and the price of gas will go up." Is this statement true or false? Explain. 31) Personal computers are becoming less expensive as new technology reduces the cost of production. In a supply and demand model, explain the effects of the technological innovations and their effect on the quantity of computers. 32) In the market for bicycles, explain what happens to the supply and demand curves when there is an increase in the price of steel used to make bikes. 33) What is the effect on the price and quantity of a product if both the demand and supply simultaneously increase? 34) What is the effect on the price and quantity of a product if the demand decreases and the supply simultaneously increases? 35) Computers are a complement to computer software. Suppose the price of a computer falls. Simultaneously, suppose that the number of companies selling computer software decreases. How do these changes affect the price and quantity of computer software? 36) In early 2009 the price of computer memory chips rose. In a demand and supply model, shifts in what curve(s) could have brought about the higher price? 37) If the equilibrium relative price for a two-liter bottle of Coca-Cola is $1.50 today, just like it was ten years ago, can we safely say that all supply and demand conditions in the market for Coke have remained very stable all these years?

EFFICIENCY AND EQUITY

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Bill Gates is the world's second richest person whose net worth is estimated at $54 billion. The idea that Bill Gates marginal utility for his 54 billionth dollar is less than someone else's 1000 th dollar is
the A) B) C) D)

1)

"Utilitarian" principle "Big Tradeoff" principle "Equity" principle "Make the Poorest as Well Off as Possible" principle

2) The above figure shows that the maximum amount a person is willing to pay for the 400th pretzel A) is greater than the marginal social cost of the 400th pretzel. B) is greater than the marginal social benefit of the 200th pretzel. C) and the marginal social benefit of the 400th pretzel are both $2. D) is less than the marginal social benefit of the 400th pretzel. 3) Adam Smith argued that each person in a competitive market is led to promote the A) efficient use of society's resources, even though it is no person's intention to make society better off. B) efficient use of society's resources, because each person's intention is to make society better off. C) inefficient use of society's resources, even though each person's intention is to make society better off. D) inefficient use of society's resources, because it is no person's intention to make society better off. 4) The decrease in consumer surplus and producer surplus that results from an inefficient level of production is called the A) external cost. B) deadweight loss. C) external benefit. D) big tradeoff. 1

2)

3)

4)

5) In May 2008, Switzerland co-hosted the international soccer tournament Euro 2008. At that time, the Swiss potato industry association had been warning there could be a fry shortage because there was a potato shortage. The shortage meant that in the French fry market A) if the inefficient quantity of fries is produced, total surplus would be maximized. B) the price for French fries would be higher. C) the price for French fries would be lower. D) if the efficient quantity of fries is produced, total surplus would be minimized. 6) The annual Great Sofa Round-up is a collaborative event between Colorado State University and the City of Fort Collins aims to help students and neighbors get rid of unwanted furniture, while giving people in need access to inexpensive sofas. Suppose on the day of the Round-up, your friends take their couches to the main parking lot on campus where the Round-up is held. Raj will not sell his couch for less than $30, Emily will not sell her couch for less than $50, Nara will not sell her couch for less than $20, Sergio just wants to get rid of his couch and he is willing to give it away for free. At the Round-up, potential buyers think that all the couches available are basically the same and they are willing to buy a couch for $25. Who will sell their couch and what is the value of the market producer surplus? A) Nara and Sergio; $5 B) Raj and Emily; $30 C) Emily, Nara, and Sergio; $25 D) Nara and Sergio; $30 7) Which of the following statements is FALSE? A) The value of one more unit of a good is the good's marginal benefit. B) The maximum price people are willing to pay for one more unit of a good is its value. C) A good's marginal benefit is the maximum price people are willing to pay for another unit. D) None of the above because all the statements are true.

5)

6)

7)

8) In the above figure, when the price of pretzels is $3.00 per pound, the total producer surplus from all the pretzels will be A) greater than at any other price. B) less than at any other price. C) the sum of the difference between $3.00 and the marginal cost of all the pounds produced. D) zero. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 9) What is allocative efficiency?

8)

10) What is the relationship between the marginal social benefit of milk and marginal social cost of milk when the efficient quantity of milk is produced? 11) Is the marginal benefit someone receives from a good or service the same as the price the person pays? Explain your answer. 12) "A demand curve is the same as a marginal cost curve." Is this statement correct or incorrect? Explain your answer. 13) What is the relationship between the marginal social benefit curve and the market demand curve. Explain. 14) Which curve is the same as the market demand curve? Why are the curves the same? 15) What is consumer surplus? 16) A new car in the dealer's showroom had a sticker price of $35,900. Sally liked the car but decided she would pay no more than $32,000 for it, otherwise she would do without it. After haggling with the dealer, she purchased the car for $31,500. Did she gain any consumers surplus? If so, how much? If not, why not?

17) If the demand for a good does not change, how will an increase in the price of that good affect the consumer surplus from it? 18) What is the marginal cost of a good? 19) What other curve is the same as the market supply curve? Why are the curves the same? 20) What is producer surplus? 21) "If the price of a ticket to Sea World exceeds the marginal cost of the ticket by $13, a producer surplus exists for Sea World." Is this statement true or false? 22) What is the significance of the concepts "consumer surplus" and "producer surplus"? 23) Can both producer surplus and consumer surplus exist at the same time in a particular market? 24) "If the marginal social benefit of a car exceeds the marginal social cost of a car, we are producing too many cars." True or false? Explain. 25) When less than the efficient amount of a good is produced, how does the marginal social benefit of the last unit produced compare to its marginal social cost? 26) Why is a competitive market efficient? 27) When economists refer to "the invisible hand," what do they mean? 28) Explain how the invisible hand delivers an efficient market outcome. 29) "If there is an inefficient level of nursing care in South America, a deadweight loss exists." Is this statement true or false? 30) What are some of the potential obstacles that can prevent a market from reaching the efficient outcome? Briefly define each obstacle. 31) Explain the difference between the "fair rules" and the "fair results" guidelines for competitive market fairness. 32) What are the two views of fairness? How does each view redistribution of income from the rich to the poor? 33) Often politicians assert that a price, such as the price of gasoline or the rent for an apartment, is too high and that it is unfair for these prices to be so high. If these products are traded in competitive markets, what fairness rule are politicians using? Why? 34) What approach to fairness argues in favor of government policies that redistribute income so that there is more equality of income? 35) Explain the utilitarianism principle. How is it deficient? 36) What is the "big tradeoff"? 4

37) Why do societies face a tradeoff between the size of the economic pie and the degree of equality with which it is shared? 38) Why does the problem of the big tradeoff arise when the government engages in the process of redistributing income using taxes and transfers? 39) Explain the principle "Make the poorest as well off as possible." Who proposed it? 40) Bill Gates is a founder of Microsoft and the world's richest individual. Suppose Microsoft sells more software and Mr. Gates acquires another billion dollars in wealth. Simultaneously, suppose a burglar whose income is well below average broke into Bill Gates' house and stole a million dollars worth of antiques. Using the "it's not fair if the rules aren't fair" approach to fairness, is Mr. Gates' acquisition of additional wealth fair? Is the (poor) thief's acquisition fair? 41) According to the "fair rules" view of fairness, are taxes fair? Explain.

Perfect Competition
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In perfect competition, ________. A) only firms know their competitors' prices B) firms in the market have advantages over firms that plan to enter the market C) there are restrictions on entry into the market D) there are many firms that sell identical products 2) In perfect competition, the product of a single firm A) is sold to different customers at different prices. B) is sold under many differing brand names. C) has many perfect complements produced by other firms. D) has many perfect substitutes produced by other firms. 3) Which of the following is a defining characteristic of a perfectly competitive market? A) no restrictions on entry into the industry B) advertisements by well known celebrities C) persistent economic profits in the long run D) higher prices being charged for certain name brands 4) Which of the following is true regarding perfect competition? I. The firms are price takers. II. Marginal revenue equals the price of the product. III. Established firms have no advantage over new firms. A) I, II and III B) I only C) I and II 5) An example of a perfectly competitive industry is A) the National Football League. B) the market for corn in the United States. C) the market for French impressionists' paintings. D) a big city police department. 6) An example of a perfectly competitive firm is A) the local cable TV company. C) an oat farmer in the United States. 1)

2)

3)

4)

D) II and III 5)

B) a U.S. automobile producer. D) a big city newspaper.

6)

7) The market for lawn services is perfectly competitive. Larry's Lawn Service cannot increase its total revenue by raising its price because ________. A) Larry's supply of lawn services is inelastic B) Larry's supply of lawn services is perfectly inelastic C) the demand for Larry's services is perfectly elastic D) the demand for Larry's services is perfectly inelastic

7)

Monopoly
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that A) purchases its resources from only one supplier because of a barrier preventing it from buying from other suppliers. B) cannot control the price it sets for its good or service because there is barrier that prevents the firm from changing the price. C) produces a good or service for which no close substitute exists and that sells all its output to one buyer because there is barrier preventing other buyers from purchasing the good or service. D) produces a good or service for which no close substitute exists and which is protected by a barrier that prevents other firms from selling that good or service. 2) An example of a monopoly is A) the stock market. B) the only veterinarian in an isolated farm community. C) a big city restaurant. D) a large hospital in a big city. 3) When natural or legal forces work to protect a firm from potential competitors, the market is said to have ________. A) restricted competition B) non-competitive supply C) non-competitive entry D) barriers to entry 4) Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the following is most likely to occur? A) Other firms will quickly copy the formula making the market for the vaccine competitive. B) Merck will not tell anyone about its discovery though it will sell the vaccine. C) Merck will have a monopoly on this vaccine because of economies of scale. D) Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years. 5) An industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost is called a A) one-firm monopoly. B) natural monopoly. C) single-price monopoly. D) legal monopoly. 6) If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost, then this company is A) a legal monopoly. B) not a monopoly. C) a natural monopoly. D) a monopoly, but not a natural monopoly. 7) A public franchise is A) a unique source of raw materials. B) an exclusive right granted to a firm to supply a good or service. C) an exclusive right granted to an inventor of a product. D) a government issued license required to practice a profession. 1)

2)

3)

4)

5)

6)

7)

8) If the government grants a firm a public franchise to supply coal, a monopoly is created by A) a legal barrier to entry. B) a natural barrier to entry. C) price discrimination. D) All of the above answers are correct. 9) Patents are ________ barriers to entry and public franchises are ________ barriers to entry. A) legal; legal B) legal; natural C) natural; natural D) natural; legal

8)

9)

Monopolistic Competition
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in ________ market. A) either a perfectly competitive or a monopolistically competitive B) definitely a monopolistically competitive C) neither a perfectly competitive nor a monopolistically competitive D) definitely a perfectly competitive 2) Which of the following is part of the market structure for monopolistic competition? A) barriers to entry B) each firm produces a differentiated product C) a large number of firms compete D) Both answers B and C are correct. 3) In monopolistic competition, the presence of a large number of firms making a differentiated product means that A) the price is established by agreements among the different firms. B) each firm must produce the same quantity. C) each firm must charge the same price. D) each firm has some ability to effect the price of its particular good or service. 4) Which of the following is NOT true of monopolistic competition? A) firms produce a good that is a perfect substitute for their competitors' goods. B) firms can compete on price and quality C) there is free entry and exit D) there are a large number of firms 5) Dole Co. operates in a monopolistically competitive market. Which of the following characterizes Dole Co.'s market? A) Dole Co.'s product is slightly different from its competitors. B) Dole Co. supplies a small portion of the market's output. C) Dole Co. faced no barrier to entry when it decided to enter its market. D) All of the above describe Dole Co.'s market. 6) One difference between perfect competition and monopolistic competition is that A) firms in monopolistic competition face a downward-sloping demand curve. B) in perfect competition, firms produce slightly differentiated products. C) a perfectly competitive industry has fewer firms. D) monopolistic competition has barriers to entry. 7) When comparing perfect competition and monopolistic competition, we find that A) advertising plays a large role in monopolistic competition, unlike in perfect competition. B) firms in monopolistic competition face barriers to entry, unlike firms in perfect competition. C) firms in monopolistic competition produce identical products just as do firms in perfect competition. D) firms in monopolistic competition are price takers just as is the case for firms in perfect competition. 1)

2)

3)

4)

5)

6)

7)

8) A product that is a close substitute but not a perfect substitute for the products of the other firms is called A) an efficient product. B) an inelastic product. C) a differentiated product. D) a homogeneous product.

8)

Oligopoly
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An oligopoly is a market structure in which there are A) only a few buyers but many sellers. B) only a few sellers selling either an identical or differentiated product. C) a few products sold by many sellers. D) many sellers selling a differentiated product. 2) If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market? A) The number of firms in the market. B) If the good being sold is a normal or inferior good. C) The number of close substitutes for the good being produced. D) The number of buyers in the market. 3) The distinguishing features of oligopoly are ________ and a ________ in the industry. A) barriers to entry; large number of firms B) no barriers to entry; large number of firms C) no barriers to entry; few firms D) barriers to entry; few firms 4) In a small town the level of demand is capable of supporting only two gas stations. This market is A) a natural duopoly. B) an example of monopolistic competition. C) operating as if it was a monopoly. D) perfectly competitive because a homogeneous good is being sold. 5) Consider a market in which each firm must predict the price and quantity decisions of other firms, as well as how those price and quantity decisions will affect the first firm's revenue and profit. This market is best described as A) a monopoly. B) an oligopoly. C) monopolistic competition. D) perfect competition. 1)

2)

3)

4)

5)

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.

6) In the scenario above, the market is: A) A natural monopoly C) A natural duopoly 7) Of the following, the best example of oligopoly is A) the restaurant industry. C) wheat farming.

B) Monopolistically competitive D) A natural oligopoly with three firms

6)

B) the cigarette industry. D) the clothing industry.

7)

8) Which of the following is characteristic of oligopoly, but NOT of monopolistic competition? A) There is more than one firm in the industry. B) Firms are profit-maximizers. C) The choices made by one firm have a significant effect on other firms. D) Each firm faces a downward-sloping demand curve. 9) ________ is a group of firms that have colluded to limit their output and raise their price. A) A duopoly B) A strategy C) A cartel D) An oligopoly

8)

9)

Market Structure 1. A perfectly competitive firm manufacturing chairs produces 100 chairs. Does this perfectly competitive producer have any incentive to undercut the current market price? Explain your answer 2. What are the conditions that define a monopoly? 3. Describe the general types of barriers. 4. List four characteristics of monopolistic competition. 5. How do the characteristics of perfect competition and monopolistic competition differ? 6. Describe the characteristics of an oligopoly. 7. What market structures other than oligopoly have the characteristic of one firm's actions affecting the actions of its competitors? Explain your answer. 8. Explain what a cartel is and the difficulties faced in maintaining a cartel.

Exam

GDP

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Corporate profits Net interest Indirect taxes less subsidies Depreciation Compensation of employees Proprietor's income Rental income Personal consumption expenditures Government expenditure on goods and services Net exports of goods and services $200 150 230 250 1,350 150 70 1,400 500 40

1) Using the data in the table above, gross domestic product equals A) $1,940. B) $1,920. C) $2,400.

D) $2,150.

1)

"As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China's ability to plough on regardless of double-digit growth rates...The ...crisis has also focused ...on the need to update a growth model that...is still dependent on assembling goods for export without adding much value and on heavy industries that create pollution. Chinese companies have continued to find new foreign markets for their products...several other factors point to a slowing property market...production of steel, cement and air conditioners was down... Retail sales have risen by 23 per cent in each of the last two months". Beijing's Burden, www.FT.com, by Geoff Dyer, Sept. 23, 2008

2) According to the article, ________ is expected to increase and add to China's ________ component of GDP. A) rental income; investment B) retail sales; investment C) retail sales; consumption D) rental income; exports 3) Gross investment equals A) net investment + depreciation. B) depreciation + change in inventories. C) net investment + change in inventories. D) net investment - depreciation + change in inventories. 4) The circular flow diagram indicates that A) households sell the services of factors of production to firms. B) firms buy the services of factors of production from the government. C) firms buy goods and services from households. D) households sell goods and services to the government.

2)

3)

4)

5) Because pollution reduces economic welfare, on this count real GDP as measured A) decreases as pollution increases. B) understates economic welfare. C) increases to take into account the expenditures that will be made in the future to clean up the pollution. D) overstates economic welfare. 6) Transfer payments are not part of government expenditure on goods and services because transfer payments A) are not predictable given the nature of their appropriation and allocation. B) The premise of the question is incorrect because transfer payments are part of government purchases of goods and services. C) do not represent the purchase of a final good or service. D) are not always spent on goods produced in the U.S. 7) Of the following, which is correct? A) Nominal GDP does not change when the production of goods and services increases. B) Real GDP changes only when the prices of goods and services really change. C) Nominal GDP increases when the prices of goods and services increase. D) Nominal GDP is not affected by changes in prices of goods and services. 8) Gross domestic product is a measure of the total value of all A) capital accumulation in an economy over a period of time. B) sales in an economy over a period of time. C) consumer income in an economy over a period of time. D) final goods and services produced in an economy over a period of time. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 9) Define and discuss GDP.

5)

6)

7)

8)

10) How does the production of a U.S. firm located in France affect U.S. GDP? How does the production of a French firm located in Ohio affect U.S. GDP? 11) Why are only final goods and services included in measuring GDP? Give examples to complete your answer. 12) Is every product produced in the United States included in U.S. gross domestic product? 13) Define and distinguish between final goods and intermediate goods. 14) Neither intermediate goods nor used goods are included in GDP. Explain why these expenditures are not included in GDP. 15) What are the categories of total expenditure? 16) How do firms and households interact within the context of the circular flow model? 17) What is the relationship shown by the circular flow among income, total expenditure, and GDP?

18) Use the idea of the circular flow diagram to explain why the value of production equals total income equals total expenditure. 19) Explain the relationship among the capital stock, gross investment, net investment, and depreciation. 20) "When a company's depreciation is larger than its gross investment, net investment becomes negative and the firm's capital stock decreases." Is the previous statement correct or incorrect? Explain your answer. 21) Investment, as included in GDP, consists of what? 22) How are changes in inventory treated in GDP? 23) "To calculate GDP, economists begin with total income earned and then subtract total expenditure by the four sectors of the economy." Is the previous sentence true or false? Explain your answer. 24) List the components of the expenditure approach to measuring GDP. 25) List and compare the four components of the expenditure approach to calculating GDP. 26) Explain how GDP is measured according to the expenditure and income approaches. 27) How does the income approach measure GDP? 28) What must be done to net domestic product at factor cost in order to transform it to gross domestic product? Explain why these adjustments are necessary. 29) Several adjustments must be made to net domestic product at factor cost in order to calculate GDP. One of these adjustments is adding depreciation. What is depreciation and why must it be added? 30) What is the difference between real and nominal GDP and why do economists make this distinction? 31) Is it possible for nominal GDP to increase while real GDP does not change? 32) Can nominal GDP ever be less than real GDP? 33) What is the relationship between actual and potential real GDP? 34) Explain the relationship between real GDP and potential GDP during the two phases of the business cycle. 35) Explain the relationship between potential GDP and real GDP in the United States since the early 1960s. You do not need to tell what happened during any specific year; just describe the general relationship. 36) What is a business cycle? 37) List and explain the two phases and two turning points of the business cycle. 38) What is a recession?

39) Explain the business cycle by describing the phases and turning points. 40) Why does real GDP have limitations in determining economic welfare? 41) Explain how our economic welfare depends upon our level of real GDP per person but there might not be a one-to-one relationship between economic welfare and real GDP per person. Give examples of things that can effect one but not the other. 42) "If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of economic welfare than people in Country B." Is this statement true or false and explain your answer. 43) List and discuss various types of goods and services omitted from measured GDP. 44) What would happen to measured GDP if more people started hiring workers to do house chores such as cooking and cleaning? 45) What is "underground production"? Is it included in GDP? 46) Explain how underground economic activity affects measurement of GDP. 47) While studying with your friend, your friend states, "Our leisure time increases GDP but lowers our economic welfare because it reduces the amount of goods and services we can consume." Is your friend's statement correct? 48) If you buy a new water skis and other new equipment for $2,500 and take a week off of your job, where you earn $1,000 a week, to go water skiing. The equipment you purchased was all produced in the United States. You think that the week was worth $4,000. As a result of your vacation, GDP changes by how much?

JOBS AND INFLATION

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The table below shows data regarding Germany's labor market. Number of Labor Force Employed Population Year (millions) (millions) (millions) 2006 43.7 39.01 82.3 2007 43.7 39.06 82.2 2008 43.6 39.8 82.1
The data show that Germany's unemployment rate between 2007 and 2008 A) stayed the same. B) increased. C) decreased D) cannot be determined because the population decreased.

1)

2) A recession causes a decrease in the demand for housing, resulting in substantial layoffs in the construction industry. The people laid off are considered A) seasonally unemployment. B) frictionally unemployment. C) structurally unemployment. D) cyclically unemployment. 3) The natural unemployment rate A) rises with an increase in cyclical unemployment. B) falls with an increase in cyclical unemployment. C) rises with an increase in structural unemployment. D) rises with a decrease in frictional unemployment.

2)

3)

Category Discouraged workers Unemployed workers Employed workers Population (16 years and over)

Number (millions) 15 40 100 225

4) In the above table, the size of the labor force is A) 100 million. B) 210 million.

C) 155 million.

D) 140 million.

4)

5) Mike has just been laid off from his construction job because consumers are not purchasing new homes because of the recession. Mike would be considered to be part of A) structural unemployment. B) seasonal unemployment. C) cyclical unemployment. D) frictional unemployment. 6) The employment-to-population ratio is equal to the number of A) employed people divided by the working-age population then multiplied by 100. B) unemployed people divided by the working age population then multiplied by 100. C) unemployed people divided by the total population then multiplied by 100. D) employed people divided by the total population then multiplied by 100.

5)

6)

7) An individual who has stopped looking for a job but has looked in the past and still wants a job is referred to as A) a contingent worker. B) a marginally attached worker. C) a productive worker. D) an unemployed worker. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 8) Why is unemployment a problem? 9) How does the Current Population Survey determine if a person should be counted in the labor force?

7)

10) How is the unemployment rate calculated? Include in your answer the process by which the U.S. Census Bureau classifies the data it collects in its Current Population Survey. 11) The current U.S. population is about 300 million yet the current U.S. labor force is only about 150 million. What subtractions are made from the population number to set it equal to the labor force? 12) What is the definition of the unemployment rate? How are part-time workers and discouraged workers treated when calculating the unemployment rate? 13) How does the unemployment rate change in a recession and in an expansion? 14) Define the unemployment rate and labor-force participation rate. Discuss the differences between these two rates. 15) What is a "marginally attached worker"? 16) What is a discouraged worker? How do they affect the unemployment rate? 17) Explain how the labor force participation rate and the unemployment rate change in a recession. 18) List and define the three types of unemployment. 19) What are the three types of unemployment and how do they change over the business cycle? 20) Give an example of a frictionally unemployed person. 21) Define and give an example of how a spell of frictional unemployment can begin. 22) Can frictional unemployment ever be totally eliminated? Explain your answer. 23) Explain the difference between frictional and structural unemployment. 24) Give an example of a structurally unemployed person. 25) Define and give an example of how a spell of structural unemployment can begin. 26) Give an example of a cyclically unemployed person. 2

27) Explain what type of unemployment changes with the business cycle and how it changes. 28) Why is there unemployment even when the economy is at "full employment"? 29) What is the relationship between the natural unemployment rate, the unemployment rate, potential GDP, and actual GDP? 30) Explain the relationship(s) between full employment, cyclical unemployment, the natural unemployment rate, and potential GDP. 31) Consider the following statement: "Real GDP and potential GDP are always equal." Is this statement true or false? Explain your answer. 32) What is potential GDP and what is the relationship between actual and potential real GDP? 33) Explain the relationship between real GDP and potential GDP and between the unemployment rate and the natural unemployment rate as the economy moves through a business cycle. 34) What is the relationship over the business cycle of potential GDP and real GDP? 35) What are the three stages of constructing the CPI? 36) "The market basket used to calculate the CPI is revised monthly to more accurately depict consumers' choices. The price data for the CPI are collected every month." Are the previous sentences true or false? 37) Assume that after you graduate, you move to a simple economy in which only three goods are produced and consumed: fish, fruit, and meat. Suppose that on January 1, fish sold for $2.50 per pound, meat was $3.00 per pound, and fruit was $1.50 per pound. At the end of the year, you discover that the catch was low and that fish prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 per pound, and meat prices had actually fallen to $2.00. Can you say what happened to the overall CPI, in terms of whether it increased, decreased, or stayed the same? Do you have enough information to calculate the inflation rate? Note, this problem requires no calculation; just state and explain your answers. 38) What is inflation and how is it measured using the Consumer Price Index? 39) List the four sources of bias in the CPI and briefly explain them. 40) Is the CPI a biased measure of the inflation rate? Explain your answer. 41) "The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer. 42) What is the commodity substitution bias? What effect does it have on the CPI? 43) "The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false? 44) Explain the CPI bias and how it can distort private contracts and increase government outlays.

45) What, if any, is the impact of the CPI bias on government spending? 46) How is the GDP deflator is calculated.

Exam

Economic Growth

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The best definition for economic growth is A) a sustained expansion of consumption goods over a given period. B) a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period. C) a sustained expansion of production possibilities measured as the increase in real GDP over a given period. D) a sustained expansion of production goods over a given period. 2) The aggregate production function shows how ________ varies with ________. A) leisure time; labor B) labor; leisure time C) labor; capital D) real GDP; labor 3) All of the following contribute to labor productivity growth EXCEPT: A) population growth. B) technological advancements. C) human capital growth. D) physical capital growth. 4) Human capital is the A) skill and knowledge accumulated by humans. B) machinery used by humans to produce GDP. C) technology used by humans to produce GDP. D) plant and equipment produced by humans and not by machines. 5) The more education that workers have, the ________ is their human capital and ________ is their productivity. A) larger; smaller B) larger; higher C) smaller; larger D) smaller; smaller 6) In addition to saving and investment in capital, making an even larger contribution to long-term economic growth in real GDP per person A) is higher current consumption. B) is lower current consumption. C) is a larger work force. D) are technological advances. 7) Labor productivity rises A) if the amount of capital per worker increases. B) if the amount of capital per worker decreases. C) if firms invest in hiring more workers rather than buying more capital. D) in the absence of technological progress. 8) A movement along the aggregate production function is the result of a change in A) technology B) interest rates C) the quantity of labor D) capital 1)

2)

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9) Economic growth is measured by A) changes in real GDP. B) changes in the employment rate. C) changes in nominal GDP. D) All of the above are used to measure economic growth. 10) We are interested in long-term growth primarily because it brings A) higher standards of living. B) higher price levels. C) trade wars with our trading partners. D) lower price levels. ESSAY. Write your answer in the space provided or on a separate sheet of paper.

9)

10)

11) Discuss the aggregate production function. How does the aggregate production function relate to the labor market and potential GDP? 12) Define the aggregate production function. Discuss why the aggregate production function exhibits diminishing returns. 13) What is the real wage rate? 14) Explain how the labor market and the production function determine potential GDP. 15) How will an increase in physical capital affect labor productivity, labor demand, and potential GDP? 16) What happens to the real wage rate and potential GDP if population increases? 17) With no change in labor productivity, what would happen to the real wage rate and potential GDP if the population increased? 18) What is the effect on real GDP per person if labor productivity increases? 19) Define labor productivity. Discuss the relationship between labor productivity, human capital growth, and technology change. 20) What are the sources of human capital? 21) Suppose the President asks you to write him a letter suggesting ways the government might help the economy achieve permanently higher rates of economic growth. Based on your understanding of growth theory and growth accounting, what would you suggest? 22) Describe ways that governments can promote faster economic growth.

FISCAL POLICY
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Fiscal policy involves A) the use of tax and money policies by government to influence the level of interest rates. B) the use of tax and spending policies by the government. C) the use of interest rates to influence the level of GDP. D) decreasing the role of the Federal Reserve in the everyday life of the economy. 2) The demand-side effect of a change in taxes is less than the same sized change in government expenditure because A) the amount by which taxes change is affected by the MPC. B) only part of the increase in disposable income from the tax cut is spent. C) changes in government expenditure do not directly affect consumption. D) tax rates are the same regardless of income levels. 3) An increase in taxes on labor income ________ the labor supply curve and ________ the labor demand curve.. A) shifts; does not shift B) does not shift; does not shift C) shifts; shifts D) does not shift; shifts 4) A government incurs a budget deficit when A) taxes are less than government outlays. B) exports are greater than imports. C) exports are less than imports. D) taxes are greater than government outlays. 5) Suppose the government increases taxes. One effect of this change is that it decreases A) the size of the government expenditure multiplier. B) disposable income which then decreases aggregate supply. C) government expenditure, which decreases aggregate demand. D) disposable income, which decreases consumption expenditure and aggregate demand. 6) An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) rightward; rightward B) leftward; leftward C) rightward; leftward D) leftward; rightward 7) Once supply side effects are taken into account, tax cuts for labor income can change I. the supply of labor II. potential GDP. A) I and II B) I only C) II only D) Neither I nor II. 8) A budget surplus occurs when government A) tax revenues equal social security expenditures. B) tax revenues exceeds outlays. C) outlays exceeds tax revenues. D) tax revenues equals outlays. 1)

2)

3)

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9) When the economy grows, ________ increase because real GDP ________. A) structural deficits; decreases B) tax revenues; increases C) tax revenues; decreases D) recognition lags; increases 10) An increase in taxes on interest income ________ supply of loanable funds curve and ________ the demand for loanable funds curve. A) does not shift; shifts B) does not shift; does not shift C) shifts; does not shift D) shifts; shifts 11) If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP? A) only a decrease government expenditure B) only an increase taxes C) decrease government expenditure and/or increase taxes D) increase government expenditure and/or decrease taxes 12) An income tax ________ potential GDP by shifting the ________ curve ________. A) increases; labor demand; rightward B) decreases; labor supply; leftward C) decreases; labor demand; leftward D) increases; labor supply; rightward 13) The difference between automatic fiscal policy and discretionary fiscal policy is that A) Congress initiates automatic fiscal policy. B) the President initiates discretionary fiscal policy. C) the President has nothing to do with discretionary fiscal policy. D) Congress must pass laws implementing discretionary fiscal policy. 14) A discretionary fiscal policy is a fiscal policy that A) involves a change in government defense spending. B) involves a change in corporate tax rates. C) requires action by the Congress. D) is triggered by the state of the economy. 15) Suppose the government of Japan increases its expenditure on goods and services. In the short run, this increase will A) cause the price level in Japan to fall. B) shift the AD curve in Japan rightward. C) shift the AD curve in Japan leftward. D) None of the above answers is correct. ESSAY. Write your answer in the space provided or on a separate sheet of paper. 16) What is fiscal policy and what are its purposes?

9)

10)

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12)

13)

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17) What is the difference between budget surplus, budget deficit and a balanced budget? Which of these three budget outcomes is currently the case in the United States? 18) How does a tax on labor income affect potential GDP? 19) What is the Laffer curve? Where on their Laffer curves are the United States, the United Kingdom and France located?

20) If the government raises taxes on labor income and interest income, explain how potential GDP and economic growth are affected. 21) What is the difference between discretionary fiscal policy and automatic fiscal policy? 22) What is automatic fiscal policy? How does it affect the budget deficit and/or budget surplus during a recession and during an expansion? 23) What is the government expenditure multiplier? 24) What is needs-tested spending and how does it affect the government expenditure multiplier? 25) Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer. 26) What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes? 27) If employment is less than full employment, what fiscal policy should the government pursue? 28) How can discretionary fiscal policy be used to close a recessionary gap? 29) If employment exceeds full employment, what fiscal policy actions could eliminate the gap? 30) What are some of the limitations of fiscal policy? Briefly discuss them.

GLOBAL MARKETS IN ACTION

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When a firms "dumps" some of its products in another country, it A) is specializing according to comparative advantage. B) sells its goods abroad at a price lower than it costs to produce the goods. C) increases the total level of employment in the receiving country. D) creates an environmental hazard in the receiving country. 2) The United States imports cars from Japan. If the United States imposes a tariff on cars imported from Japan, A) U.S. tariff revenue equals the loss of U.S. consumer surplus. B) U.S. consumers lose and U.S. producers gain. C) U.S. consumers lose and Japanese producers gain. D) U.S. car manufacturers gain revenue equal to the revenue lost by Japanese car manufacturers. 3) The gains from free trade are enjoyed by a ________ number of people and the costs of free trade are imposed by ________ number of people. A) small; small B) small; large C) large; large D) large; small 1)

2)

3)

4) Which of the following is a valid reason for protecting an industry? A) Protection penalizes lax environmental standards. B) None of the above reasons is a valid reason for protection. C) Protection keeps richer nations from exploiting the workers of poorer countries. D) The industry is unable to compete with low-wage foreign competitors. 5) A country opens up to trade and becomes an exporter of wheat. In the wheat market, consumer surplus will ________, producer surplus will ________, and total surplus will ________. A) increase; decrease; increase B) decrease; increase; decrease C) decrease; increase; increase D) remain unchanged; increase; increase 6) Which of the following reasons explains why rich countries persistently restrict textile imports from poor countries? A) Rich countries have a strong need for the revenue from these trade restrictions. B) The trade restrictions make textile consumers better off. C) The trade restrictions make workers in poor countries better off. D) The trade restrictions benefit an organized visible special interest in rich countries. 7) A tariff is A) a tax on a good imported into a nation. B) an agreement between governments to limit exports from a nation. C) a government imposed barrier that sets a fixed limit on the amount of a good that can be imported into a nation. D) a government imposed limit on the amount of a good that can be exported from a nation. 8) When the United States exports a good, U.S. consumer surplus ________ and U.S. total surplus ________. A) decreases; decreases B) increases; decreases C) decreases; increases D) increases; increases 1

4)

5)

6)

7)

8)

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 9) Define comparative advantage and discuss its role in international trade. 10) "When countries specialize in producing the good in which they have a comparative advantage and then trade with each other, only the country with the absolute advantage gains." Is the previous statement correct or incorrect? Briefly explain your answer. 11) How does a tariff affect the domestic price of the import, the domestic consumption, the domestic production, and the quantity imported? 12) How does an import quota affect the domestic price of the import, the domestic consumption, the domestic production, and the quantity imported? 13) Currently, the United States has an import quota on the amount of sugar that is allowed to be imported into the United States. What would happen to the price of sugar in the United States if the import quota was removed? What would happen to U.S. consumption and U.S. production of sugar? 14) How does a tariff affect the government's revenue? How does an import quota affect the government's revenue? 15) Discuss reasons why we see trade restrictions. Are any of these reasons valid? 16) Two arguments used to promote trade barriers are the infant-industry argument, and the dumping argument. Explain each of these arguments and evaluate whether each one has any flaws. 17) Because wage rates are so low in Africa, why don't Microsoft, Cisco and other major corporations close down their American operations and move to Africa? 18) Some people assert that protection from foreign competition prevents rich countries from exploiting developing countries. What is this argument in more detail and what is its flaw? 19) Explain how governments restrict international trade and who benefits as well as who loses from the restrictions. 20) What is "rent seeking?" How does it apply to restricting imports? 21) Economics demonstrates that opening up unrestricted free international trade is beneficial to all nations. However, are there any losers from such a policy change? 22) How does the United States attempt to compensate losers from lower trade restrictions?