MACRO REVIEW for TEST No. 1

MACRO REVIEW FOR TEST No. 1

Study the What, Why and How of all concept, focusing especially on the topics listed below. The practice test below is to give you an idea of what the questions are like. Go back to your booklet and the in-class quizzes. You will also find replicas of some of the problems we solved together in class. Take another stab at them, and see if you can bypass some of your original mistakes.

CHAPTER ONE

Scarcity

Resource Categories

Normative Economics

Positive Economics

CHAPTER TWO

What to produce, How to produce, for Whom to produce

When is the Economy Efficient? PPF/PPC - every thing on it.

Opportunity Cost

Marginal Analysis

Law of Increasing Opportunity Cost

Six factors leading to economic growth

CHAPTER THREE

Law of Demand

Non-price Determinants of Demand

Law of Supply

Non-price Determinants of supply

Equilibrium vs. Disequilibrium (Surpluses and Shortages)

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Pop Quiz # 1

1. Using the table below, what is the opportunity cost of (info is in tons):

a) corn in the US?

b) blueberries in the Canada?

c) Which country has the higher opportunity cost for blueberries?

2. If the price of one pound of filet mignon is $15 and the price of whole chicken is $7, then assuming that you have a budget of $15, what is the opportunity cost of the filet mignon?

3. How is labor different from entrepreneurship?

4. Looking at the production possibilities curve below, please explain whether it’s possible to produce the combination of a) 8 units of food and 6 computers, b) 10 units of food and 9 computers, and c) What is the OC of computers if we produce at point T instead of point R? What is the OC of food if we produce at point Q instead of point V?

5. An artist was producing 4 paintings and 5 sculptures a month. She is now producing 3 sculptures and 7 paintings instead. The price of each painting is $5000 and the price of each sculpture is $3000. What is the opportunity cost of a painting? Does the painter have a high or low opportunity cost (OC) given the new change? Explain your answer thoroughly.

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Already tackled in class, but try them again:

1. Which of the following would increase Supply?

a. An increase in the price

b. A decrease in the price

c. An increase in taxes

d. A decrease in taxes

2. Which of the following would decrease Demand?

a. An increase in price

b. A decrease in price

c. An increase in income

d. A decrease in income

3. Studying the graph below makes the following correct:

a. Increased prices caused a shift in the demand curve

b. Income could have increased

c. Resource prices would have dropped

d. The number of buyers could have decreased

4. Based on the graph below, which of the following is true?

a. A leftward shift in supply has caused prices to rise

b. The non-price determinants of demand have stayed the same

c. The number of sellers could have shrunk

d. Prices caused supply to shift

e. All of the above except D

f. All of the above except B

TRUE AND FALSE QUESTIONS (worth 1 point each)

1. The Law of Increasing Opportunity Cost states that opportunity cost increases at a faster rate than production, which means that, at some point, more production ceases to be profitable.

2. Scarcity is an economic condition that can be eliminated through wealth.

3. Capital does not have to be productive.

4. Diminishing returns occur with each additional unit produced due to the law of increasing opportunity cost, therefore, eventually firms and economies must restructure and divest.

5. The PPC, with its pregnant shape, demonstrates the law of increasing opportunity cost.

6. If the price of Hood milk decreases, then quantity demanded of Hood milk would increase and quantity supplied would decrease.

SHORT ANSWER QUESTIONS (worth 1 point each)

1. For the law of demand what are variable #1 and variable #2? How are they related? Now give a precise example.

2. For the law of supply what are variable #1 and variable #2? How are they related? Now give a precise example.

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Practice Questions

1. Which five ingredients make up an economy?

2. Mass customization sacrifices volume for the sake of products and services tailored to individual tastes and preferences.

3. A mismatch between capacity of capital for a firm and the number of workers required to operate it at optimal levels leads to increased opportunity cost.

4. What can eliminate scarcity permanently?

5. How would the following shift the US PPC?

a. Increased human capitalleftright

b. Nano technologyleft right

c. A smaller labor forceleft right

6. If price increases then demand would decrease.

7. If price decreases then quantity supplied would decrease.

8. Which of the following would decrease demand (shift it to the left). Circle all that apply.

a. Smaller number of buyers

b. Higher income

c. Increase in price

d. Lower future price expectation

e. Cheaper substitute

f. Lower price

g. Cheaper complement

9. Which of the following would increase supply (shift it to the right). Circle all that apply.

a. Greater number of sellers

b. Higher resource prices

c. Higher prices

d. Lower future price expectation

e. Another product they could produce or sell that possesses a lower price and lower

profits

f. Lower taxes

g. Lower prices

10. Which of the following has a higher OC?

a. Selling surf boards in Iowab. opening an upscale restaurant in Boston

11. Espresso and milk are complements. If the price of espresso decreases, then:

a. Demand for espresso increasesc. Demand for espresso decreases

b. Demand for milk increases d. Demand for milk decreases

12. How does the following change Demand or Supply?

a. Business taxes are decreased on the textile Industry.

b. Capital becomes readily available for grain growers.

c. A new study reveals that legumes reduce bad cholesterol.

d. Price of home heating oil is expected to increase in the future.

13. Looking at the graph below, what is the opportunity cost of producing 40 units of y?

14. What would increase quantity demanded and decrease quantity supplied?

a. Increase in priceb. Decrease in pricec. Increase in number of buyers

15. What would cause the price of anything to decrease?

a. An increase in Demand or decrease in Supply

b. A decrease in Demand or increase in Supply

16. What is the overall cost for a man who earns $900 per week with an employer who does not offer paid vacations, if he must spend $3,000 to go on a 7-day cruise, plus arrange to kennel his dog for $25 per day?

a. $3,025

b. $3,175

c. $4075

17. OC is fiercest when an economy is efficient, because the production of one more thing can only come at the expense of something else.

18. Explain why the PPC has a bowed out shape:

19. Suppose that you have a marginal benefit of $200 per month should you rent your basement, then according to Marginal Analysis, you should rent your basement if:

a. Your net worth is negative

b. Your marginal cost is $50 (why? Because the $200>$50)

c. Your marginal cost is $250

d. The basement is not needed for storage

20. Public goods are necessary because all can benefit regardless of income and tax contribution.

21. The maturity stage of a product or company best demonstrates the Law of Increasing OC.

22. When the price of a product or service changes, then the quickest and cheapest solution for a business is to ______

23. How many units should the following company produce?

24. A decrease in supply graphically means that a decrease in total quantity supplied (a change in the range) has occurred, perhaps a reduction in prices as well.

25. Stating that “Life is hard” is an example of positive economics.

26. Explain the graph below:

27. Explain the graph below:

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