Deck 3: Consumers and Incentives,the Wealth of Nations: Defining and Measuring Macroeconomic Aggregates

Question 1

Now suppose your income returns to its original level, $300, the price of sweaters remains constant at $20, but the price of jeans falls from $60 per pair to $30 per pair, so your new budget constraint is $30j + $20s = $300. This rotation of your budget constraint is shown in the graph below.
As a result of the decrease in the price of jeans from $60 per pair to $30 per pair, the opportunity cost of a pair of jeans ________.

A) remains unchanged at 3 sweaters
B) falls to 2 sweaters
C) falls to 1.5 sweaters
D) falls to sweaters

Answer 1

falls to 1.5 sweaters

Question 2

Dawn has preferences for minor league baseball games and NASCAR races. Minor league baseball tickets are $10 per game and NASCAR tickets are $20/race. Dawn?s monthly budget of $90 allows her to buy five minor league baseball tickets and two NASCAR tickets. At this consumption bundle, her marginal benefit of the last baseball game is 30 and the marginal benefit of the last NASCAR ticket is 40. Dawn ________.

A) could increase her total benefit by buying more minor league baseball tickets and fewer NASCAR race tickets
B) could increase her total benefit by buying NASCAR race tickets and fewer minor league baseball tickets
C) is maximizing her total benefit with her current consumption bundle
D) Cannot answer the question given the information provided

Answer 2

could increase her total benefit by buying more minor league baseball tickets and fewer NASCAR race tickets

Question 3

Lily wants to maximize her benefit of consuming apples and bananas, given her fixed budget of $10 for these two fruits. The price of an apple is $1, and the price of a banana is $0.50. In order to derive Lily?s demand curve for bananas, we need to ________.

A) solve the buyer?s problem for her once, and find the optimal number of bananas, when price of a bananas is $0.50
B) solve the buyer?s problem for her multiple times and find the optimal number of bananas, when price of a bananas is at a different level each time
C) draw a downward sloping line with slope of -1
D) draw a downward sloping line with slope of-2

Answer 3

solve the buyer?s problem for her multiple times and find the optimal number of bananas, when price of a bananas is at a different level each time

Question 4

Which of the following statements correctly differentiates between consumer surplus and net benefits?

A) Consumer surplus at different levels of consumption can be calculated mathematically, whereas net benefits at different levels of consumption cannot be estimated.
B) Consumer surplus at different levels of consumption cannot be estimated, whereas net benefits at different levels of consumption can be calculated mathematically.
C) Consumer surplus measures the difference between the willingness to pay for a good and the price paid for the good, whereas net benefits measure the overall satisfaction gained from the consumption of a good.
D) Consumer surplus measures the overall satisfaction gained from the consumption of a good, whereas net benefits measure the difference between the willingness to pay for a good and the price paid for the good.

Question 5

The following figure illustrates the market demand curve for wine.


-Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $9 per bottle?

A) $180,000
B) $90,000
C) $60,000
D) $210,000

Question 6

The following figure illustrates the market demand curve for wine.


-Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $18 per bottle?

A) $36,000
B) $3,000
C) $45,000
D) $210,000

Question 7

Which of the following formulas is used to calculate the arc elasticity of demand?

A) Arc elasticity of demand = [(Q₂ - Q₁)/(Q₂/2)]/[(P₂ - P₁)/(P₂/2)]
B) Arc elasticity of demand = [(Q₂ + Q₁)/(Q₂/2)]/[(P₂ + P₁)/(P₂/2)]
C) Arc elasticity of demand = [(Q₂ - Q₁)/(Q₂ + Q₁)/2]/[(P₂ -P₁)/(P₂ + P₁)/2]
D) Arc elasticity of demand = [(Q₁ - Q₂)/(Q₂ + Q1)]/[(P₁- P₂)/(P₂ + P₁)]

Question 8

a) Classify and draw the demand curves for two goods with the following price elasticities of demand:
i) Price elasticity of demand = ?
ii) Price elasticity of demand = 0
b) Consider two goods: A and B. Good A has many close substitutes, while Good B has only a few. An individual spends an equal amount of his budget on both goods. Given this information, which of the two goods will have a higher price elasticity of demand?
c) Consider two goods: A and B. Both goods have the same number of substitutes, but consumers spend a higher proportion of their income on Good A than on Good B. Given this information, which of the two goods will have a higher price elasticity of demand?

Question 9

a) Gary is a heavy smoker who spends $400 per week on cigarettes. The government decides to levy a 20 percent tax on all cigarettes. The burden of this tax will be completely borne by consumers. After the tax is levied, Gary?s expenditure on cigarettes increases to $432 per week. If each pack of cigarettes sells for $20, calculate Gary?s price elasticity of demand for cigarettes and comment on the elasticity of demand for addictive goods.
b) If the demand for a good has an absolute price elasticity greater than one, what will happen to the total expenditure on the good if its price increases?
c) If the demand for a good has an absolute price elasticity equal to one, what will happen to the total expenditure on the good if its price increases?

Question 10

Greenaqua Corp. is the only supplier of bottled drinking water in Lithasia. Its positive economic profits in the short run attract new companies to the market. If new companies producing their own line of bottled drinking water enter the market, which of the following statements is likely to be true?

A) The profits Greenaqua Corp. earn on their line of bottled drinking water is likely to increase.
B) The price elasticity of demand for Greenaqua Corp.?s bottled drinking water is likely to increase.
C) The price elasticity of demand for Greenaqua Corp.?s bottled drinking water is likely to decrease.
D) The price elasticity of demand for Greenaqua Corp.?s bottled drinking water is likely to remain the same.

Question 11

Which of the following statements is true of the price elasticity of demand?

A) As the number of substitutes for a good increases, the price elasticity of demand for that good decreases.
B) If a consumer?s budget share of a good increases, the price elasticity of demand for that good is likely to decrease.
C) The price elasticity of demand for a good is generally higher in the long run than in the short run.
D) If the price elasticity of demand for a good equals zero, the demand for the good is likely to be highly responsive to price changes.

Question 12

The following table contains statistics for the country of Caddyville in 2013.


-Refer to the table above. What is Caddyville's per capita income for 2013?

A) $52,935
B) $61,067
C) $71,429
D) $87,532

Question 13

The following table contains statistics for the country of Caddyville in 2013.


-Refer to the table above. What is the size of the labor force in Caddyville for 2013?

A) 62,200
B) 67,000
C) 74,000
D) 88,000

Question 14

The following table contains statistics for the country of Gregorville in 2017, a country in which all must either attend school, be available for work, or be retired.


-Refer to the table above. What is the labor force?

A) 72,000
B) 62,000
C) 76,000
D) Not enough information provided

Question 15

The following table contains statistics for the country of Gregorville in 2017, a country in which all must either attend school, be available for work, or be retired.


-Refer to the table above. What is the unemployment rate?

A) 13.9 percent
B) 19.4 percent
C) 33.3 percent
D) 108.3 percent

Question 16

The following table contains statistics for the country of Gregorville in 2017, a country in which all must either attend school, be available for work, or be retired.


-Refer to the table above. What is the labor force if 5,000 of those actively looking for a job find one?

A) 72,000
B) 62,000
C) 76,000
D) Not enough information provided

Question 17

The following table contains statistics for the country of Gregorville in 2017, a country in which all must either attend school, be available for work, or be retired.


-Refer to the table above. What is the unemployment rate if 5,000 of those actively looking for a job find one?

A) 6.9 percent
B) 13.9 percent
C) 19.4 percent
D) 86.1 percent

Question 18

A retailer buys goods worth $15,000 from a manufacturer and sells them for $18,250. The retailer adds a value of ________ to the production process.

A) $18,250
B) $15,000
C) $3,250
D) $33,250

Question 19

The table below shows the values of various economic variables of a country during a particular year.


-Refer to the table above. The GDP of the country is ________.

A) $452,000
B) $402,000
C) $554,000
D) $352,000

Question 20

The table below shows the values of various economic variables of a country during a particular year.


-Refer to the table above. The trade balance of the country during that particular year was ________.

A) -$104,000
B) $50,000
C) -$6,000
D) $4,000

Question 21

The table below shows the values of various economic variables of a country during a particular year.


-Refer to the table above. What will be the value of the GDP of the country if the country runs a trade surplus of $30,000 next year, everything else remaining unchanged?

A) $524,000
B) $378,000
C) $372,000
D) $407,000

Question 22

The table below contains data for the country of Wandalian for the year 2017.


-Refer to the above table. What was Wandalian's GDP in 2017?

A) $3,623
B) $4,721
C) $5,037
D) $5,839

Question 23

The table below contains data for the country of Wandalian for the year 2017.


-Refer to the above table. What was Wandalian's consumption in 2017?

A) $1,708
B) $1,913
C) $2,035
D) $3,052

Question 24

The table below contains data for the country of Wandalian for the year 2017.


-Refer to the above table. What was Wandalian's investment in 2017?

A) $975
B) $1,341
C) $1,491
D) $1,793

Question 25

The table below contains data for the country of Wandalian for the year 2017.


-Refer to the above table. What was Wandalian's government purchases in 2017?

A) $1,030
B) $1,571
C) $1,677
D) $2,044

Question 26

Frozen Cow Ice Cream Company buys sugar and milk to produce ice cream and energy drinks. At the end of a quarter, both its inventory of sugar and its inventory of energy drinks has increased, but their inventory of milk has decreased. Investment for the quarter will include ________.

A) the increased inventory of sugar plus the increased inventory of energy drinks minus the decreased inventory of milk
B) the increased inventory of sugar and decreased inventory of milk, but not the increased inventory of energy drinks
C) the increased inventory of energy drinks, but not the increased inventory of sugar or decreased inventory of milk
D) none of the changes of inventory

Question 27

The GDP of Ritzland during a particular year was $120,000. If the expenditure on investment was $16,000, the expenditure incurred by the government was $35,000, the value of exports was $10,000, and the value of imports was $22,000, then the expenditure on consumption was ________.

A) $81,000
B) $19,000
C) $37,500
D) $44,000

Question 28

How does gross national product (GNP) differ from gross domestic product (GDP) in terms of definition?

A) GNP includes production of all workers who typically reside in the country, even if some of their production occurs in another country.
B) GNP only includes production by citizens of that country, while GDP includes the production by foreigners in the country.
C) GNP includes production of all goods produced and consumed within the country and not the production of goods that are exported or imported.
D) GNP includes production of all goods within a country?s borders, while GDP includes production of good produced outside the boarders but owned by residents of the country.

Question 29

The following table provides data for the small country of Nabou.


-Refer to the above table. What is the GDP for Nabou using the expenditure method?

A) $3,901
B) $2,180
C) $2,490
D) $2,340

Question 30

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,00,000 per year.

-Refer to the above scenario. How much does John contribute to U.S. GDP?

A) $0
B) $20,000
C) $40,000
D) $80,000

Question 31

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,00,000 per year.

-Refer to the above scenario. How much does John contribute to U.S. GNP?

A) $0
B) $20,000
C) $50,000
D) $90,000

Question 32

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,00,000 per year.

-Refer to the above scenario. How much does Sue contribute to U.S. GDP?

A) $0
B) $40,000
C) $1,000,000
D) $1,040,000

Question 33

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,00,000 per year.

-Refer to the above scenario. How much does Sue contribute to U.S. GNP?

A) $0
B) $40,000
C) $1,000,000
D) $1,040,000

Question 34

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,00,000 per year.

-Refer to the above scenario. Accounting for non-market based economic production, how much does John contribute to U.S. GDP?

A) $0
B) $40,000
C) $1,000,000
D) $1,040,000

Question 35

The country described in the table below produces and consumes only three goods: energy drinks, pizza, and t-shirts. The quantity produced and price of each good in 2016 and 2017 are provided.


-Refer to the above table. Assuming that 2016 is the base year, what is real GDP for 2017?

A) $6,785
B) $7,115
C) $7,400
D) $7,950

Question 36

The country described in the table below produces and consumes only three goods: energy drinks, pizza, and t-shirts. The quantity produced and price of each good in 2016 and 2017 are provided.


-Refer to the above table. Assuming that 2017 is the base year, what is real GDP for 2016?

A) $7,800
B) $7,900
C) $8,100
D) $8,500

Question 37

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.

-Refer to the scenario above. The real GDP of the country in Year 1 was ________.

A) $1,400,000
B) $280,000
C) $540,000
D) $2,200,000

Question 38

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.

-Refer to the scenario above. The nominal GDP of the country in Year 1 was ________.

A) $540,000
B) $280,000
C) $1,400,000
D) $2,200,000

Question 39

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.

-Refer to the scenario above. The real GDP of the country in Year 2 was ________.

A) $1,680,000
B) $240,000
C) $32,000,000
D) $1,420,000

Question 40

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.

-Refer to the scenario above. The nominal GDP of the country for Year 2 was ________.

A) $180,000
B) $1,920,000
C) $2,510,000
D) $174,000

Question 41

A typical resident of the country of Univertopia consumes a simple basket of goods consisting of soda, pizza, and Frisbees. The base year?s basket contains 500 sodas, 200 pizzas, and 40 Frisbees. The prices of these goods over 8 years are given in the table.


-Refer to the scenario above. Using 2014 as the base year, what is the Consumer Price Index for 2016?

A) 118.2
B) 120.0
C) 121.6
D) 124.0

Question 42

The following table contains prices and quantities for the three goods produced in the country of Linfieldia.


-Refer to the table above. Assuming that 2015 is the base year, what is real GDP for 2016?

A) $1,780
B) $2,915
C) $3,470
D) $5,120

Question 43

The following table contains prices and quantities for the three goods produced in the country of Linfieldia.


-Refer to the table above. Assuming that 2015 is the base year, what is nominal GDP for 2014?

A) $4,350
B) $5,340
C) $5,680
D) $6,770

Question 44

The following table contains prices and quantities for the three goods produced in the country of Linfieldia.


-Refer to the table above. Assuming 2015 is the base year, what is real GDP for 2014?

A) $5,280
B) $5,340
C) $5,790
D) $6,430

Question 45

Mr. Clooney inherited a sum of $30,000 in 1990. If the price index was 100 for 1990 and 188 for 2014, the value of the money he inherited in 2014 dollars is ________.

A) $56,400
B) $45,200
C) $38,800
D) $48,000