SLU ECON 1900 FINAL Study Guide

SLU ECON 1900 FINAL Study guide Total gains from trade to society can be measured as value to buyers minus cost to sellers. Consider the market for knotweed. Resveratrol, which is found in the plant Japanese knotweed, has recently been shown to increase life expectancy. In the market for knotweed, we should expect which of the following: producer surplus rises or producer surplus falls producer surplus rises. Consider the market for automobiles. The economies of India and China have surged in the early twenty-first century. Millions of people in China and India are now wealthier than ever before. In the market for automobiles, we should expect which of the following: gains from trade rise or gains from trade fall gains from trade rise Consider the market for oil. A January 2011 article in the Wichita Eagle indicates that new advanced horizontal drilling technology is being used to produce oil. In the market for oil, we should expect which of the following: consumer surplus rises or consumer surplus falls. consumer surplus rises. Suppose that a large number of workers migrate to the US. In the US market for labor, we should expect gains from trade rise or gains from trade fall gains from trade fall. Markets produce desirable outcomes and align self-interest with the social interest because in equilibrium the sellers with the highest cost of production sell or because in equilibrium the sellers with the lowest cost of production sell. because in equilibrium the sellers with the lowest cost of production sell. Markets produce desirable outcomes and align self-interest with the social interest because in equilibrium the buyers with the lowest willingness to pay purchase good or because in equilibrium the buyers with the highest willingness to pay purchase goods. because in equilibrium the buyers with the highest willingness to pay purchase goods. Markets produce desirable outcomes and align self-interest with the social interest in the sense that they produce efficient allocations or in the sense that they maximize producer surplus and are therefore good for business. both? Which of the following is correct? a. The "invisible hand" of markets is analogous to the "survival of the fittest" of nature. b. The "invisible hand" of markets is not analogous to the "survival of the fittest" of nature. The "invisible hand" of markets is not analogous to the "survival of the fittest" of nature. Inefficiency is a. often the result of cutthroat competition and markets run amok. b. often the result of too few markets rather than too many. often the result of too few markets rather than too many. Consider the market for widgets. Suppose a tax is imposed on sellers of widgets. a. Market activity will decline. b. Market activity will rise. Market activity will decline. Consider the market for widgets. Suppose a tax is imposed on sellers of widgets. a. Price received by sellers will rise. b. Price received by sellers will fall. Price received by sellers will fall. Consider the market for widgets. Suppose a tax is imposed on sellers of widgets. a. Price paid by buyers will rise. b. Price paid by buyers will fall. Price paid by buyers will rise. Consider the market for widgets. Suppose a tax is imposed on sellers of widgets. Buyers will be spared the burden of the tax. a. True. b. False. false Consider the market for widgets. Suppose a tax is imposed on sellers of widgets. a. Gains from trade will rise. b. Gains from trade will fall. Gains from trade will fall. Consider the market for widgets. Suppose a tax is imposed on buyers of widgets. a. Gains from trade will rise. b. Gains from trade will fall. Gains from trade will fall. Suppose the government requires firms to provide their workers with health insurance. I.e., firms are required by law to buy health insurance for every worker hired. Would such a policy ensure that workers receive health insurance but do not bear the burden of its cost? a. Yes. b. No. no Suppose the government needs to generate tax revenue, but wants to limit efficiency losses. Which would be preferred? A tax in the market for oil or a tax in the market for butter. a. A tax in the market for oil, because demand is more inelastic. b. A tax in the market for butter, because demand is more elastic. A tax in the market for oil, because demand is more inelastic. Nobel prize-winning economist Ed Phelps strongly advocated using wage subsidies in the market for low-wage workers. If firms were subsidized for every low-wage worker they hired, employment and wages received by low wage workers would both rise. a. True. b. False. True. The US government subsidizes college education - in the form of Pell grants and lower-cost government Stafford loans. If demand for education is more elastic than supply, colleges receive more of these subsidies than do students. a. True. b. False. false The purpose or intent of a price floor is a. to help buyers who may be struggling due to high prices. b. to help sellers who may be struggling due to low prices. to help sellers who may be struggling due to low prices. Does a price floor accomplish what it's intended to accomplish? a. Yes - price controls clearly achieve their intended purpose. b. No - it's not clear price controls achieve their intended purpose. depends on equilibrium price and where the price is set in comparison of the perfect equilibrium California is experiencing a severe water shortage. Lack of rain and associated drought are clearly the cause. a. True. b. False. false Rent control may cause a housing shortage. What would you expect to happen to this shortage over time? [Hint: Think about elasticity.] a. The shortage would increase over time. b. The shortage would decrease over time. The shortage would increase over time. Since 1985, the cost of attending college has increased over 400%. As a result, many individuals who would like to attend college cannot afford to. In response to this situation, a number of pundits and politicians have called for limits on college tuition. If limits are imposed what will happen to the number of people that attend college? a. Increase. b. Decrease. Increase. In a free market equilibrium, would you expect more or less racial discrimination than in a market with a price ceiling that keeps prices low for buyers? a. More discrimination in a free market. b. Less discrimination in a free market. More discrimination in a free market. Years ago, the Civil Aeronautics Board extensively regulated airlines and kept ticket prices well above market equilibrium levels. How would you expect the quality of service back then to compare to quality of service today? a. Lower quality back then. b. Higher quality back then. Higher quality back then. Prices are one mechanism for allocating scarce resources. Lines (first come, first served) are another. Both prices and lines produce efficient allocations. a. True. b. False. False. A price ceiling ensures only high value/willingness-to-pay buyers buy. a. True. b. False. False. A minimum wage increases employment relative to a free market wage. a. True. b. False. false GDP includes goods but not services a. True b. False false GDP is a measure of a. production b. sales production GDP is a measure of a. income b. wealth income Which of the following would NOT be included in GDP for 2006? a. The 2006 purchase of paper by Hallmark Greeting Cards. b. Money spent by the State of Missouri in 2006 to hire extra police due to an increase in the crime rate. Money spent by the State of Missouri in 2006 to hire extra police due to an increase in the crime rate. The economic perspective understands GDP to be an ideal measure of living standards. a. True. b. False. false If people eat at restaurants relatively more and prepare their own meals at home relatively less, a. GDP will remain unchanged. b. GDP will rise. GDP will rise. GDP captures the value of leisure time in addition to the value of time spent in work. However, GDP fails to capture "bads," such as the environmental costs associated with production. a. True b. False true As a measure of changes in living standards over time, real GDP growth is preferred to nominal GDP growth. a. True b. False true Although we've learned a great deal about the "wealth of nations" since Adam Smith, we still do not understand why some countries are quite rich while others are quite poor. a. True. b. False. false Which of the following is most likely to foster economic growth? a. Property rights and rule of law. b. Limits on international trade. Property rights and rule of law. From an economic perspective, we care about unemployment because it is inefficient. a. True b. False true From an economic perspective, we care about unemployment because it can be very difficult for those individuals who experience it. a. True b. False true A person who does not have a job is unemployed. a. True b. False false The Bureau of Labor Statistics announced that in April 2018, of all adult Americans, 155 MN were employed, 6 MN were unemployed, 96 MN were not in the labor force. Based on this information, the unemployment rate was a. 6/(6 + 155)*100 = 3.7% b. 6/(6 + 155 + 96)*100 = 2.3% 6/(6 + 155 + 96)*100 = 2.3% Because discouraged workers are not counted as unemployed, the unemployment rate (U3) tends to a. over-state the extent to which the economy is under-performing. b. under-state the extent to which the economy is under-performing. under-state the extent to which the economy is under-performing. In the US, unemployment rates do not differ substantially by race or education level. a. True. b. False. false Which of the following is best described as structural unemployment? a. The economy gets worse, so General Motors shuts down a factory for four months, laying off workers. b. General Motors lays off 5000 workers and replaces them with robots. The workers start looking for jobs outside the auto industry. General Motors lays off 5000 workers and replaces them with robots. The workers start looking for jobs outside the auto industry. Which of the following is best described as frictional unemployment? a. The economy gets worse, so General Motors shuts down a factory for four months, laying off workers. b. About 10 workers per month at a General Motors plant quit their jobs because they want to live in another town. They start searching for work in the new town. About 10 workers per month at a General Motors plant quit their jobs because they want to live in another town. They start searching for work in the new town. For many years, in much of Europe, nearly 50% of the unemployed have been unemployed for more than a year. In contrast, in the US, over 50% of the unemployed are typically unemployed for fewer than 14 weeks. What is a likely explanation for such different experiences of the unemployed in Europe and the US? a. The US has more generous and wide-ranging labor market regulations than Europe. b. Europe offers more unemployment benefits, has higher minimum wages, and more union coverage of workers than the US. Europe offers more unemployment benefits, has higher minimum wages, and more union coverage of workers than the US. If a country wishes to reduce the amount of structural unemployment its labor force faces, it might a. impose employment protection laws. b. reduce unemployment benefits. impose employment protection laws. Inflation is an increase in income relative to prices. a. True b. False false Inflation is an increase in the median level of prices. a. True b. False true The inflation rate is the percent change in the equally weighted average level of prices. a. True b. False false The CPI was 235.169 in February 2014 and was 232.599 in February 2013. What was the inflation rate between February 2013 and February 2014? a. (235.169 - 232.599)/232.599*100 b. 235/(235.169 - 232.599)*100 (235.169 - 232.599)/232.599*100 In recent months, the inflation rate has been low relative to its post-WWII average. a. True b. False true The average inflation rate for the US over the post-WWII period is around 10%. a. True b. False false The Quantity Theory of Money indicates that an increase in the money supply will stimulate real GDP growth in the long run. a. True b. False true The Quantity Theory of Money indicates that inflation is caused by money supply growth in the long run. a. True b. False true Empirical evidence is not consistent with the Quantity Theory of Money. a. True b. False false From an economic perspective, corporate greed is the clear cause of recent high inflation rates experienced in the US. a. True b. False false