Subjective Short Answer
1. Like biologists and physicists, economists use the dispassionate development and testing of how the world works
known as the
2. As a substitute for laboratory experiments, economists use evidence available through history’s
3. Suppose a war in the Middle East interrupts the flow of crude oil and oil prices skyrocket around the world. For
economists, this historical episode serves as a
4. Just like other scientific models, economic models simplify reality using
5. The three main factors of production, or categories of inputs, used by firms to produce goods and services are
6. In the circular flow diagram, who owns the factors of production and consumes all of the goods and services produced?
7. In the circular flow diagram, when Brian provides labor through the markets for factors of production to ABC
Company, the flow of money he receives in exchange is called
8. In the markets for goods and services in the circular flow diagram, households act as
9. In the circular flow diagram, when Daphne purchases a new mobile phone, she participates in the markets for
Figure 2-3
10. Refer to Figure 2-3. What is the name of the model depicted in the figure?
11. Refer to Figure 2-3. What do the ovals represent in the figure?
12. Refer to Figure 2-3. What do the rectangles represent in the figure?
13. Refer to Figure 2-3. What do the outer arrows represent in the figure?
14. Refer to Figure 2-3. What do the inner arrows represent in the figure?
15. Refer to Figure 2-3. What does the arrow going from oval A to rectangle 2 represent in the figure?
16. Refer to Figure 2-3. What does the arrow going from oval B to rectangle 2 represent in the figure?
17. Refer to Figure 2-3. What are two elements not included in this figure that could be included in a more complex
model?
18. What you must give up to get something else is called the
Figure 2-14
Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination
of the two.
19. Refer to Figure 2-14. The bowed outward shape of the production possibilities curve indicates that opportunity cost
of apples in terms of sweaters is
20. Refer to Figure 2-14. Which point(s) on the graph is(are) efficient production possibilities?
21. Refer to Figure 2-14. Which point(s) on the graph show unemployment of resources?
22. Refer to Figure 2-14. Which point(s) on the graph is(are) unattainable given current resources and technology?
23. Refer to Figure 2-14. What is the opportunity cost of moving from point T to point R?
24. Refer to Figure 2-14. What is the opportunity cost of moving from point R to point Q?
Figure 2-15
25. Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars.
As the economy moves from point A to point D, is the opportunity cost of cars increasing, constant, or decreasing?
26. Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars.
The opportunity cost of one sofa is
27. Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars.
The opportunity cost of one car is
Table 2-6
Mobile Phones
0
200
500
900
1400
2000
28. Refer to Table 2-6. Consider the production possibilities table for an economy that produces only mobile phones and
pizzas. What is the opportunity cost of increasing production of mobile phones from 200 to 500?
29. Refer to Table 2-6. Consider the production possibilities table for an economy that produces only mobile phones and
pizzas. What is the opportunity cost of increasing production of pizzas from 4,000 to 6,000?
400 mobile phones.
30. Refer to Table 2-6. Consider the production possibilities table for an economy that produces only mobile phones and
pizzas. Describe the shape of the production possibilities frontier.
31. Who would be more likely to study the effects of government spending on the unemployment rate, a macroeconomist
or a microeconomist?
macroeconomist
32. Who would be more likely to study the effects of foreign competition on the accounting industry, a macroeconomist or
a microeconomist?
33. Who would be more likely to study the effects of rent control on housing in New York City, a macroeconomist or a
microeconomist?
34. Who would be more likely to study the inflation rate in the United States, a macroeconomist or a microeconomist?
35. When economists are trying to explain the world, they are scientists. When they are trying to improve it, they are
36. What type of statement is a descriptive statement about how the world is?
37. What type of statement is a prescriptive statement about how the world ought to be?
38. Which type of statement – positive or negative – can be evaluated by analyzing data alone?
39. Is the following a positive or normative statement? The federal minimum wage is lower than many state minimum
wages.
40. Is the following a positive or normative statement? The Federal Reserve should set an inflation target and employ
policies to meet the target.
41. Is the following a positive or normative statement? The United States government should mandate that every citizen
purchases health insurance.
42. Is the following a positive or normative statement? The unemployment rate in Nevada is higher than the
unemployment rate in New York.
43. Since 1946, the president of the United States has received guidance from a group comprised of three members and a
staff of a few dozen economists known as the
44. Economists at which administrative department help formulate spending plans and regulatory policies?
45. Economists at which administrative department help design tax policy?
46. Economists at which administrative department analyze data on workers and those looking for work to help formulate
labor-market policies?
47. Economists at which administrative department help enforce the nation’s antitrust laws?
48. The institution that sets the nation’s monetary policy is called the
49. When economists disagree about whether the government should tax a household’s income or its consumption, they
are expressing a difference in
50. When economists disagree about whether a policy is fair, they are expressing a difference in
51. Most economists agree that a large federal budget deficit has what type of effect on the economy?
52. Refer to Figure 2-22. What are the coordinates of point C?
53. Refer to Figure 2-22. What is the x-coordinate of point R?
54. Refer to Figure 2-22. How are price and quantity related in this graph?
55. Refer to Figure 2-22. What is the slope of the line with points A, B, and C?
56. Refer to Figure 2-22. Is a move from point A to point B considered a shift of the curve or a movement along the
curve?
movement along the curve
57. Refer to Figure 2-22. Is a move from point A to point R considered a shift of the curve or a movement along the
curve?
shift of the curve
58. Refer to Figure 2-22. Given that price is measured on the vertical axis, quantity is measured on the horizontal axis,
and that the curves are downward-sloping, what type of curves are depicted here?
59. Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a
simple economy. Explain briefly the various parts of the diagram.
that the outer loop represents the corresponding flow of payments.
60. The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and
horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for
prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie
dog towns on their land so these towns will not be disturbed by their cattle.
Draw a rancher’s production possibilities frontier showing increasing opportunity cost of cattle production in terms of
prairie dog production. Using a separate graph for each situation, show what would happen to the initial production
possibilities frontier in each of the following situations:
a.
The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and
prairie dogs.
b.
As a protest against the government introducing the gray wolf back into the wild in their
state, ranchers decide to withhold 25 percent of the available grassland for grazing.
c.
The price of prairie dogs increases to $200 each, so ranchers decide to allot additional
land for prairie dogs.
d.
The government grants new leases to ranchers, giving them 10,000 new acres of
grassland each for grazing.
e.
A drought destroys most of the available grass for grazing of cattle, but not for prairie
dogs since they also eat plant roots.
61. Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes.
a.
On the graph, identify the area of feasible outcomes and the area of infeasible outcomes.
b.
On the graph, label a point that is efficient and a point that is inefficient.
c.
On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource
needed to make both horseshoes and hammers, on this economy.
d.
On a second graph, illustrate the effect of a new computerized assembly line in the
production of hammers on this economy.
62. Identify each of the following topics as being part of microeconomics or macroeconomics:
a.
the impact of a change in consumer income on the purchase of luxury automobiles
b.
the effect of a change in the price of Coke on the purchase of Pepsi
c.
the impact of a war in the Middle East on the rate of inflation in the United States
d.
factors influencing the rate of economic growth
e.
factors influencing the demand for tractors
f.
the impact of tax policy on national saving
g.
the effect of pollution taxes on the U.S. copper industry
h.
the degree of competition in the cable television industry
i.
the effect of a balanced-budget amendment on economic stability
j.
the impact of deregulation on the savings and loan industry
a, b, e, g, h, and j are microeconomic topics. c, d, f, and i are macroeconomic topics.
63. Which of the following statements are positive and which are normative?
a.
The minimum wage creates unemployment among young and unskilled workers.
b.
The minimum wage ought to be abolished.
c.
If the price of a product in a market decreases, then, other things equal, quantity demanded will
increase.
d.
A little bit of inflation is worse for society than a little bit of unemployment.
e.
There is a tradeoff between inflation and unemployment in the short run.
f.
If consumer income increases, then, other things equal, the demand for automobiles will
increase.
g.
The U.S. income distribution is not fair.
h.
U.S. workers deserve more liberal unemployment benefits.
i.
If interest rates increase, then investment will decrease.
j.
If welfare benefits were reduced, then the country would be better off.
a, c, e, f, and i are positive statements. b, d, g, h, and j are normative statements.
64. Use the following graph to answer the following questions.
a.
How would point J be represented as an ordered pair?
b.
What type of curve is this?
c.
Does this curve show a positive or negative correlation between price and quantity?
d.
Compute the slope of D1 between points J and L.
e.
What is the slope of D1 between points L and N? Why would you not have to calculate
this answer?
f.
What is it called if we move from D1 to D2?
g.
How do you know that the slope of D2 is the same as the slope of D1?