First Midterm

jo611ann's version from 2011-03-12 19:30

Section 1

Question Answer
We could solve the scarcity problem if we were able to limit our wants
Can an individual ever enjoy a free lunchYes, if we're talking about goods or services received from the government
what do economists assume about peoplethey always act in a predictable fashion
how do economists feel about uninformed decisionspeople have not maximized their welfare if the marginal cost of obtaining more information is less than the marginal benefit
relationship between value and price of a goodvalue of a good could be anything compared to price

Section 2

Question Answer
Difference between a hypothesis and a theorytheory consists of a set of related hypotheses
Post Hoc Fallacyafter that, therefore because of that
Why use regression analysisit can help economists separate the impacts of different variables
specialization according to competitive advantage requiresthat you specialize in what you do best and trade for whatever else you need
specialization is limited bythe size of the market

Section 3

Question Answer
in order for the level of income in a circular flow diagram to remain constant over time all income that is earned must somehow be spent
allocative efficiency isproducing output to the point where marginal benefits equals the marginal cost
increase in demand for bananas will not be caused by drop in the market price of bananas
one thing that can prevent market from moving toward equilibriumgovernment intervention
expectation of higher future prices actually causes higher prices now becausedemand will increase now as people try to buy before price rises

Section 4

Question Answer
if expected future price of an automobile rises, thensupply of automobiles will fall
if demand increases and supply decreases, what happens to market price and quantityprice goes up but change in quantity is uncertain
minimum wage is an example of a price floor
price controls as a means of fighting inflationusually cause even higher inflation when removed
transfer payment is a payment by the government to an individualfor which the government does not receive a good or service in return

Section 5

Question Answer
Largest component of spending in GDP isconsumption spending
In comparison to GNP, GDP includes onlyspending that occurs only within the US
Which of the following accurately describes an effect of the hurricane Katrina on GDPGDP would increase reflecting the costs of cleanup
Net national product is equal toGNP minus depreciation
in periods when prices are falling on average,real GDP will grow faster than nominal GDP
Recession is defined as whenreal GDP declines for two consecutive quarters

Section 6

Question Answer
Unemployment rate is calculated as number of unemployed people divided by the labor force
If there is no cyclical unemployment, then the unemployment rate equals the natural rate of unemployment
Since 1960, labor force participation of men has dropped
Minimum wage laws cause unemployment because legal minimum wage is setabove the market wage, causing labor demand to be less than labor supply