Question 1

Which price index published by the US federal government represents wholesale price changes?

Accepted Answer

The Producer Price Index (PPI) published by the US federal government measures the average changes in selling prices received by domestic producers for their output. It represents wholesale price changes. The Consumer Price Index (CPI) measures changes in the prices of goods and services purchased by households, while the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. The Dow-Jones Industrial Average is a stock market index that tracks the performance of 30 large, publicly-owned companies in the United States.

Question 2

The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is:

Accepted Answer

The answer of The price of a taco was $0.29...

Question 3

Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2012 dollars, we should:

Accepted Answer

To convert the nominal price of gasoline in 1987 to the real price of 1987 gasoline in 2012 dollars, we need to adjust for inflation. Inflation is measured by the CPI (consumer price index), which shows the change in the cost of goods and services over time. We need to multiply the nominal price of gasoline in 1987 by the 2012 CPI and divide by the 1987 CPI. This will give us the real price of gasoline in 1987 dollars adjusted for inflation up to 2012. Therefore, the correct answer is B.

Question 4

The nominal price of industrial red paint was $12 per gallon in 1993. To convert this value to the real price of paint in 2012 dollars, we should use the:

Accepted Answer

The Producer Price Index (PPI) is used to adjust prices for inflation in the context of industrial goods, such as industrial red paint, to reflect real prices over time.

Question 5

Since last year, the price of gold has risen from $1100 to $1420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months?

Accepted Answer

To find the real price of gold, we need to adjust for inflation. We can use the formula: Real Price = Nominal Price / (1 + Inflation Rate). We want to find the inflation rate that would make the real price of gold today the same as it was a year ago, when the nominal price was $1100. Plugging in the numbers, we get:

1420 = 1100 / (1 + Inflation Rate)

Solving for Inflation Rate, we get:

Inflation Rate = (1420 / 1100) - 1 = 0.2909 or 29.09%

Therefore, the correct answer is A) Approximately 29%.

Question 6

Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by:

Accepted Answer

The real price change accounts for inflation, so the adjusted initial price is $6,000 * 1.10 = $6,600. The price fell to $5,000, so the real price change is ($5,000 - $6,600) / $6,600 = -24%.

Question 7

Use the following statements to answer this question:
I. The inflation rate (the rate of change in the general price level) calculated from a price index like CPI is the same regardless of the base year we use to form the price index.
II. Although the CPI may indicate the general price level increased by 5% last year, there are some consumer products that may have experienced more or less inflation in the past year.

Accepted Answer

The answer of Use the following statements to answer this...

Question 8

The "constant dollar" price is:

Accepted Answer

The "constant dollar" price refers to the value of a good or service adjusted for inflation, allowing for the comparison of purchasing power over time. This concept encompasses the real price of a good (A), the nominal price adjusted for inflation (B), and the "current dollar" price adjusted for inflation (C), making all of the provided options correct descriptions of the "constant dollar" price.

Question 9

A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area?

Accepted Answer

If state gasoline tax increases, it will make commuting more expensive and may discourage people from traveling long distances to work, which will not help expand the geographic extent of the housing market in a metropolitan area. On the other hand, if the price of gasoline declines or public transit fares decrease, it will make commuting more affordable and may encourage people to travel longer distances to work, thus expanding the geographic extent of the housing market. Therefore, options A and C would help to expand the housing market, while option B would not.

Question 10

Which price index published by the US federal government represents retail price changes?

Accepted Answer

The Consumer Price Index (CPI) published by the US federal government represents retail price changes. The CPI measures the average change over time in the prices paid by consumers for a basket of goods and services. The other options listed are not price indices that measure retail price changes. The Producer Price Index (PPI) measures price changes from the perspective of producers, the GDP deflator measures changes in the prices of all goods and services included in GDP, and the Dow-Jones Industrial Average is a stock market index that tracks the performance of 30 large publicly-owned companies in the US.

Question 11

Suppose the price of crude oil is $95 per barrel in New York and $85 per barrel in Texas, and the transaction costs for trading between the two markets are $15 per barrel. What actions should you take to arbitrage this price difference?

Accepted Answer

The answer of Suppose the price of crude oil is...

Question 12

Which of the following goods is NOT a likely component of the Consumer Price Index?

Accepted Answer

The Consumer Price Index (CPI) primarily measures price changes in goods and services that are typically bought by households. While hamburger, 87 octane gasoline, and movie tickets are all commonly purchased by households, structural steel beams are rarely purchased by individual consumers and are more commonly used in construction projects by businesses and government agencies. Therefore, structural steel beams are not a likely component of the CPI.

Question 13

What does it mean when the CPI is higher this year than last?

Accepted Answer

When the Consumer Price Index (CPI) is higher this year compared to last, it indicates that there has been inflation since last year, meaning the general level of prices for goods and services has risen.

Question 14

From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why?

Accepted Answer

A) Dealer bicycles often differ significantly in quality and performance, making them less directly comparable and substitutable. B) The dealer market is usually localized, limiting the number of competitors within a given area. These factors contribute to a less competitive environment compared to the mass market, where products are more standardized and the market is broader.

Question 15

Suppose the Social Security Administration would like to guarantee the purchasing power of social security payments to the elderly does not diminish. That is, the real value of the payments does not decrease. The CPI in 1990 was 130.7 and the CPI in 1998 was 163.0. How much does the Social Security Administration need to increase payments from 1990 to 1998 to accomplish this objective?

Accepted Answer

The answer of Suppose the Social Security Administration would like...

Question 16

Arbitraging price differences between two markets is generally not possible if:

Accepted Answer

Even if there is a price difference between two markets, if the transportation costs are higher than the difference in prices, then it would not be profitable to arbitrage between the markets. Additionally, if the government has prohibited exchange between the two markets, then arbitrage is not possible at all. Therefore, option E, which includes both scenarios, is the correct answer.

Question 17

Which of the following statement is FALSE?

Accepted Answer

Each statement provided is true within the context of economic theory, making the assertion that one of them is false incorrect.

Question 18

Suppose the minimum wage was $0.25 per hour in 1938 and the CPI in that year was 11.5. If the CPI in 1990 was 130.7, what is the real value of the 1938 minimum wage in terms of 1990 dollars? The real value of the 1990 minimum wage in terms of 1990 dollars is $4.25. Has the real value of the minimum wage declined since 1938?

Accepted Answer

The answer of Suppose the minimum wage was $0.25 per...

Question 19

When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2000. Suppose we want to convert this CPI series to have a base year of 2000 (that is, CPI₂₀₀₀ = 100). What is the value of the revised CPI for 1980?

Accepted Answer

To convert the CPI series to have a base year of 2000, we need to multiply all the CPI values by (CPI₂₀₀₀/CPI₉₈₃) = (100/172.2). Therefore, the revised CPI for 1980 would be: (82.4) x (100/172.2) = 47.9.

Question 20

Before their merger, XM and Sirius were competing sellers in the U.S. satellite radio market. The U.S. Department of Justice allowed the merger even though it created a single seller in the market. Why might we expect this merger to have limited impact on U.S. consumers?

Accepted Answer

There are many close substitutes for satellite radio service (e.g., free AM-FM radio, internet radio), so the merger is unlikely to have a significant impact on U.S. consumers. The merged firm may choose to keep prices and profits low in order to remain competitive with these substitutes, but even if they do not, consumers have other options to choose from. Demand for satellite radio is also likely to be elastic, meaning that consumers are somewhat responsive to price changes.

Quiz 1: Preliminaries

Which price index published by the US federal government represents wholesale price changes?

The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is:

Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2012 dollars, we should:

The nominal price of industrial red paint was $12 per gallon in 1993. To convert this value to the real price of paint in 2012 dollars, we should use the:

Since last year, the price of gold has risen from $1100 to $1420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months?

Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by:

The "constant dollar" price is:

A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area?

Which price index published by the US federal government represents retail price changes?

Suppose the price of crude oil is $95 per barrel in New York and $85 per barrel in Texas, and the transaction costs for trading between the two markets are $15 per barrel. What actions should you take to arbitrage this price difference?

Which of the following goods is NOT a likely component of the Consumer Price Index?

What does it mean when the CPI is higher this year than last?

From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why?

Arbitraging price differences between two markets is generally not possible if:

Which of the following statement is FALSE?

When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2000. Suppose we want to convert this CPI series to have a base year of 2000 (that is, CPI₂₀₀₀ = 100) . What is the value of the revised CPI for 1980?

Before their merger, XM and Sirius were competing sellers in the U.S. satellite radio market. The U.S. Department of Justice allowed the merger even though it created a single seller in the market. Why might we expect this merger to have limited impact on U.S. consumers?

Quiz 1: Preliminaries

Which price index published by the US federal government represents wholesale price changes?

The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is:

Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2012 dollars, we should:

The nominal price of industrial red paint was $12 per gallon in 1993. To convert this value to the real price of paint in 2012 dollars, we should use the:

Since last year, the price of gold has risen from $1100 to $1420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months?

Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by:

The "constant dollar" price is:

A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area?

Which price index published by the US federal government represents retail price changes?

Suppose the price of crude oil is $95 per barrel in New York and $85 per barrel in Texas, and the transaction costs for trading between the two markets are $15 per barrel. What actions should you take to arbitrage this price difference?

Which of the following goods is NOT a likely component of the Consumer Price Index?

What does it mean when the CPI is higher this year than last?

From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why?

Arbitraging price differences between two markets is generally not possible if:

Which of the following statement is FALSE?

When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2000. Suppose we want to convert this CPI series to have a base year of 2000 (that is, CPI2000 = 100) . What is the value of the revised CPI for 1980?

Before their merger, XM and Sirius were competing sellers in the U.S. satellite radio market. The U.S. Department of Justice allowed the merger even though it created a single seller in the market. Why might we expect this merger to have limited impact on U.S. consumers?

When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 172.2 for 2000. Suppose we want to convert this CPI series to have a base year of 2000 (that is, CPI₂₀₀₀ = 100) . What is the value of the revised CPI for 1980?