Question: Economics is best defined as the study

> The residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2016, they spend a total of $200 for 100 heads of cauliflower, $75 for 50 bunches of broccoli, and $50 for 500 carrots. In 2017, they spend a total of $225 for 7

> The largest component in the basket of goods and services used to compute the CPI is a. food and beverages. b. housing. c. medical care. d. apparel.

> Which contributes more to GDP—the production of a pound of hamburger or the production of a pound of caviar? Why?

> Which contributes more to GDP—the production of an economy car or the production of a luxury car? Why?

> Fill in the blanks: Real GDP (in 2000 dollars) GDP Deflator (base year Nominal GDP (in current Year dollars) 2000) 1970 3,000 1,200 1980 5,000 60 1990 6,000 100 2000 8,000 2010 15,000 200 2020 10,000 300 2030 20,000 50,000

> Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby’s store to be sold later. What is GDP here?

> Draw a supply-and-demand diagram for wool suits in the country of Autarka. When trade is allowed, the price of a suit falls from 3 to 2 ounces of gold. In your diagram, show the change in consumer surplus, the change in producer surplus of gold. In your

> When does a country become an exporter of a good? An importer?

> Suppose that Congress imposes a tariff on imported automobiles to protect the U.S. auto industry from foreign competition. Assuming that the United States is a price taker in the world auto market, show the following on a diagram: the change in the quant

> Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Maria’s production possibilities frontier for reading economics and sociology. b. What is Maria’s opportunit

> The CPI measures approximately the same economic phenomenon as a. nominal GDP. b. real GDP. c. the GDP deflator. d. the unemployment rate.

> When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation? a. Domestic production of coffee rises, and Ectenia becomes a coffee importer. b. Domestic p

> The demand for beer is more elastic than the demand for milk. Would a tax on beer or a tax on milk have a larger deadweight loss? Why?

> Draw a supply-and-demand diagram with a tax on the sale of a good. Show the deadweight loss. Show the tax revenue.

> Evaluate the following two statements. Do you agree? Why or why not? a. “A tax that has no deadweight loss cannot raise any revenue for the government.” b. “A tax that raises no revenue for the government cannot have any deadweight loss.”

> Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price. What is the change in producer surplus, change in consumer surplus, and dea

> Draw a supply curve for turkey. In your diagram, show a price of turkey and the producer surplus at that price. Explain in words what this producer surplus measures.

> Explain how sellers’ costs, producer surplus, and the supply curve are related.

> An early freeze in California sours the lemon crop. Explain what happens to consumer surplus in the market for lemons. Explain what happens to consumer surplus in the market for lemonade. Illustrate your answers with diagrams.

> The demand curve for cookies is downward-sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? a. It falls by less than $100. b. It falls by more than $100. c. It rises by less

> In a supply-and-demand diagram, show how a tax on car buyers of $1,000 per car affects the quantity of cars sold and the price of cars. In another diagram, show how a tax on car sellers of $1,000 per car affects the quantity of cars sold and the price of

> What two things does GDP measure? How can it measure two things at once?

> In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing? a. Mateo in washing, Tyler in mowing. b. Tyler in washing, Mateo i

> Which causes a shortage of a good—a price ceiling or a price floor? Justify your answer with a graph.

> The government has decided that the free-market price of cheese is too low. a. Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and- demand diagram to show the effect of this policy on the price of cheese and the q

> In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________. a. increase, decrease, surplus b. decrease, increase, surplus c. increase, decrease, short

> Define the price elasticity of supply. Explain why the price elasticity of supply might be different in the long run than in the short run.

> List and explain the four determinants of the price elasticity of demand discussed in the chapter.

> Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacatio

> The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the price elasticity of demand is a. 1/5. b. 1/2. c. 2. d. 5.

> Make up an example of a monthly demand schedule for pizza, and graph the implied demand curve. Give an example of something that would shift this demand curve, and briefly explain your reasoning. Would a change in the price of pizza shift this demand cur

> What are the demand schedule and the demand curve, and how are they related? Why does the demand curve slope downward?

> Explain why an economy’s income must equal its expenditure.

> “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.” Is this statement true or false? Explain.

> In what sense is economics like a science? Draw a production possibilities frontier for a society that produces food and clothing. Show an efficient point, an inefficient point, and an infeasible point. Show the effects of a drought. Define microeconomic

> An increase in ________ will cause a movement along a given demand curve, which is called a change in ________. a. supply, demand b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

> Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1 fish? What is Friday’s? Who has an absolute advantage in catching fish? Wh

> Explain how absolute advantage and comparative advantage differ.

> American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers. a

> Once again, in an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? a. Mateo in washing, Tyler in mowing. b. Tyler i

> Give an example of a positive statement and an example of a normative statement that somehow relates to your daily life. Name three parts of government that regularly rely on advice from economists.

> Why do economists make assumptions?

> Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.” a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out sh

> What components of GDP (if any) would each of the following transactions affect? Explain. a. Uncle Henry buys a new refrigerator from a domestic manufacturer. b. Aunt Jane buys a new house from a local builder. c. The Jackson family buys an old Victoria

> The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers. b. households are buyers, and firms are sellers. c. households and firms are both buyers. d. households and firms are b

> Why is a country better off not isolating itself from all other countries? Why do we have markets, and according to economists, what roles should government play in them?

> In what ways is economics a science?

> What items would you include to figure out the opportunity cost of a vacation to Disney World?

> You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?

> What has been the approximate long-run growth rate of real GDP per person in the United States? Name a country that has had faster growth and a country that has had slower growth.

> What does the level of a nation’s GDP measure? What does the growth rate of GDP measure? Would you rather live in a nation with a high level of GDP and a low growth rate or in a nation with a low level of GDP and a high growth rate?

> Most countries, including the United States, import substantial amounts of goods and services from other countries. Yet the chapter says that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itsel

> Over the past century, real GDP per person in the United States has grown about _____ percent per year, which means it doubles about every _____ years. a. 2, 14 b. 2, 35 c. 5, 14 d. 5, 35

> If the price of a hot dog is $2 and the price of a ham- burger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers. a. 5 b. 15 c. 30 d. 60

> Explain why the following might be true: A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas farmers receive.

> One day, Barry the Barber, Inc., collects $400 for hair- cuts. Over this day, his equipment depreciates in value by $50. Of the remaining $350, Barry sends $30 to the government in sales taxes, takes home $220 in wages, and retains $100 in his business t

> During the Revolutionary War, the American colonies could not raise enough tax revenue to fully fund the war effort. To make up the difference, the colonies decided to print more money. Printing money to cover expenditures is sometimes referred to as an

> The participation of women in the U.S. labor force has risen dramatically since 1970. a. How do you think this rise affected GDP? b. Now imagine a measure of well-being that includes time spent working in the home and taking leisure. How would the change

> If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then a. the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade. b. the natio

> Consider how health insurance affects the quantity of healthcare services performed. Suppose that the typical medical procedure has a cost of $100, yet a person with health insurance pays only $20 out of pocket. Her insurance company pays the remaining $

> You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain.

> Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows: a. Draw the demand and supply curves. What is unusual about this supply curve? Why might this be true?

> Suppose Americans decide to save more of their in- comes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher product

> Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. Can you think of how this might cause the numbers in the second column of Table 3 to be misleading in a comparison of the econ

> Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy affect the domestic price of steel, the quantity

> Suppose that a market is described by the following supply and demand equations: QS = 2P QD = 300 - P a. Solve for the equilibrium price and the equilibrium quantity. b. Suppose that a tax of T is placed on buyers, so the TT new demand equation is QD =

> A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Y

> A market is described by the following supply and demand curves: QS = 2P QD = 300 - P a. Solve for the equilibrium price and quantity. b. If the government imposes a price ceiling of $90, does a shortage or surplus (or neither) develop? What are the pri

> Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $5 and the government wants to reduce smoking by 20 percent, by how much should it incre

> Draw the supply and demand curves for cookies. If the government imposes a tax on cookies, show what happens to the price paid by buyers, the price received by sellers, and the quantity of cookies sold. In your diagram, show the deadweight loss from the

> An economic model is a. a mechanical machine that replicates the functioning of the economy. b. a fully detailed, realistic description of the economy. c. a simplified representation of some aspect of the economy. d. a computer program that predicts the

> Because bagels and cream cheese are often eaten together, they are complements. a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern—a fall in the pric

> Why do economists sometimes offer conflicting advice to policymakers?

> How are inflation and unemployment related in the short run?

> In what ways is your standard of living different from that of your parents or grandparents when they were your age? Why have these changes occurred?

> The great 18th-century economist Adam Smith wrote, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about b

> Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain

> A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread. a. What is GDP i

> Assume the United States is an importer of televisions and there are no trade restrictions. U.S. consumers buy 1 million televisions per year, of which 400,000 are produced domestically and 600,000 are imported. a. Suppose that a technological advance am

> Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on a typical day. a. To raise revenue, the mayor decides to charge hotels a tax of $10 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $108, and the numbe

> One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers. a. Draw a supply-and-demand diagram to show what happened to price, quantity, consumer surplus, and producer

> What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue? Explain.

> At Fenway Park, home of the Boston Red Sox, seating is limited to about 38,000. Hence, the number of tickets issued is fixed at that figure. Seeing a golden opportunity to raise revenue, the City of Boston levies a per ticket tax of $5 to be paid by the

> A storm destroys half the fava bean crop. Is this event more likely to hurt fava bean farmers if the demand for fava beans is very elastic or very inelastic? Explain.

> Two drivers, Walt and Jessie, each drive up to a gas station. Before looking at the price, each places an order. Walt says, “I’d like 10 gallons of gas.” Jessie says, “I’d like $10 worth of gas.” What is each driver’s price elasticity of demand?

> Describe the role of prices in market economies.

> Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on

> Are the following statements true or false? Explain in each case. a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.” b. “Certain talented people have a comparative advant

> What is the difference between a positive and a normative statement? Give an example of each.

> What is inflation and what causes it?

> Discuss each of the following statements from the standpoints of equality and efficiency a. “Everyone in society should be guaranteed the best healthcare possible.” b. “When workers are laid off, they should be able to collect unemployment benefits unti

> Describe two ways the U.S. government tries to encourage advances in technological knowledge.

> The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve. a. Draw the competitive market equilibrium. Label the price, quantity, consumer surplus, and producer surplus. Is there any deadweight loss? Expl

> International data show a positive correlation between income per person and the health of the population. a. Explain how higher income might cause better health outcomes. b. Explain how better health outcomes might cause higher income. c. How might the

> The chapter explains that Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation. a. If the elderly consume the same market basket as other p

> Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable.

> Having rejected a tariff on textiles (a tax on imports), the president of Isoland is now considering the same- sized tax on textile consumption (including both imported and domestically produced textiles). a. Using Figure 4, identify the quantity consume

> This chapter analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays $2 to the buyer. How does the subsidy affect consumer surpl

> There are four consumers willing to pay the following amounts for haircuts: Gloria: $35 Jay: $10 Claire: $40 Phil: $25 There are four haircutting businesses with the following costs: Firm A: $15 Firm B: $30 Firm C: $20 Firm D: $10 Each firm has the capac

> A case study in this chapter discusses the federal minimum-wage law. a. Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, t