UCI Spring 2014 Econ / IS 13 Homework 1 (100 points)

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UCI Spring 2014 Econ / IS 13 Homework 1 (100 points) Due: Check Syllabus for due date Multiple Choice (2 pt each) Identify the choice that best completes the statement or answers the question. ... ____ 1. In the United States, incomes have historically grown a. about 0.5 percent per year. b. about 2 percent per year. c. about 4 percent per year. d. about 6 percent per year. ____ 2. Which of the following is an important cause of inflation in an economy? a. increases in productivity in the economy b. the influence of positive externalities on the economy c. lack of property rights in the economy d. growth in the quantity of money in the economy ____ 3. The business cycle is the a. relationship between unemployment and inflation. b. irregular fluctuations in economic activity. c. positive relationship between the quantity of money in an economy and inflation. d. predictable changes in economic activity due to changes in government spending and taxes. ____ 4. In the circular-flow diagram, a. profit flows from households to firms. b. labor flows from households to firms. c. services flow from households to firms. d. All of the above are correct. ____ 5. Where can an economy not produce? a. inside its production possibilities frontier b. on its production possibilities frontier c. outside its production possibilities frontier d. at the endpoints of its production possibilities frontier ____ 6. Normative statements are a. descriptive. b. claims about how the world should be. c. claims about how the world is. d. made by economists speaking as scientists. ____ 7. A movement upward and to the left along a demand curve is called a(n) a. increase in demand. b. decrease in demand. c. decrease in quantity demanded. d. increase in quantity demanded. ____ 8. Suppose Spencer and Kate are the only two demanders of lemonade. Each month, Spencer buys six glasses of lemonade when the price is $1.00 per glass, and he buys four glasses when the price is $1.50 per glass. Each month, Kate buys four glasses of lemonade when the price is $1.00 per glass, and she buys two glasses when the price is $1.50 per glass. Which of the following points is on the market demand curve? Point Price Quantity A $1.00 4 B $1.00 10 C $1.50 2 D $1.50 6 a. B only b. B and D only c. A and C only d. D only Figure 4-4 ____ 9. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand B to Demand C in the market for DVDs in the United States? a. a decrease in the price of DVDs b. a decrease in the price of DVD players c. a change in consumer preferences toward watching movies in movie theaters rather than at home d. a decrease in the number of people in the United States Figure 4-6 ____ 10. Refer to Figure 4-6. The movement from D’ to D could be caused by a. a decrease in price. b. a decrease in income, assuming the good is inferior. c. buyers expecting the price of the good to fall in the near future. d. an increase in the price of a complement. ____ 11. Suppose that when income rises, the demand curve for doctor’s visits shifts to the right. In this case, we know doctor’s visits are a. inferior goods. b. normal goods. c. perfectly competitive goods. d. durable goods. ____ 12. Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today’s demand curve for Mustangs a. shifts to the right. b. shifts to the left. c. shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. d. will not shift; rather, the demand curve for Mustangs will shift to the right next month. ____ 13. An increase in the price of a good would a. increase the supply of the good. b. increase the amount purchased by buyers. c. give producers an incentive to produce more. d. decrease both the quantity demanded of the good and the quantity supplied of the good. Figure 4-11 Firm A Firm B ____ 14. Refer to Figure 4-11. If these are the only two sellers in the market, then the market quantity supplied at a price of $4 is a. 6 units. b. 7 units. c. 8 units. d. 14 units. ____ 15. Which of the following events must cause equilibrium price to rise? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase ____ 16. A surplus exists in a market if a. there is an excess demand for the good. b. quantity demanded exceeds quantity supplied. c. the current price is above its equilibrium price. d. All of the above are correct. Figure 4-16 ____ 17. Refer to Figure 4-16. If price in this market is currently $14, then there would be a(n) a. surplus of 20 units. The law of supply and demand predicts that the price will rise from $14 to a higher price. b. excess supply of 20 units. The law of supply and demand predicts that the price will fall from $14 to a lower price. c. surplus of 40 units. The law of supply and demand predicts that the price will rise from $14 to a higher price. d. excess supply of 40 units. The law of supply and demand predicts that the price will fall from $14 to a lower price. ____ 18. Consumer surplus a. is the amount of a good that a consumer can buy at a price below equilibrium price. b. is the amount a consumer is willing to pay minus the amount the consumer actually pays. c. is the number of consumers who are excluded from a market because of scarcity. d. measures how much a seller values a good. Table 7-1 Buyer Willingness To Pay Lori $50.00 Audrey $30.00 Zach $20.00 Calvin $10.00 ____ 19. Refer to Table 7-1. If price of the product is $30, then the total consumer surplus is a. $-10. b. $-6. c. $20. d. $30. ____ 20. A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases. Figure 7-5 ____ 21. Refer to Figure 7-5. At the equilibrium price, consumer surplus is a. $200. b. $300. c. $500. d. $600. Figure 7-8 ____ 22. Refer to Figure 7-8. Which area represents the increase in producer surplus when the price rises from P1 to P2? a. BCG b. ACH c. ABGD d. AHGB Table 7-11 Price Quantity Demanded Quantity Supplied $12.00 0 36 $10.00 3 30 $ 8.00 6 24 $ 6.00 9 18 $ 4.00 12 12 $ 2.00 15 6 $ 0.00 18 0 ____ 23. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be a. $16. b. $18. c. $24. d. $26. ____ 24. Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn he mows. What’s the total contribution to GDP each time Tim mows a yard? a. $1 b. $19 c. $20 d. $21 ____ 25. Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is a. included in both U.S. GDP and U.S. GNP. b. included in U.S. GDP, but it is not included in U.S. GNP. c. included in U.S. GNP, but it is not included in U.S. GDP. d. included in neither U.S. GDP nor U.S. GNP. ____ 26. Which of the following is not an example of a durable good? a. a refrigerator b. an automobile c. a business suit d. a furnace ____ 27. For the purpose of calculating GDP, investment is spending on a. stocks, bonds, and other financial assets. b. real estate and financial assets such as stocks and bonds. c. capital equipment, inventories, and structures, including household purchases of new housing. d. capital equipment, inventories, and structures, excluding household purchases of new housing. ____ 28. Consider the following three items of spending by the government: (i) the federal government pays a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts? a. only item (i) b. only item (ii) c. only items (i) and (ii) d. only items (ii) and (iii) ____ 29. A Texas household receives a Social Security check for $500, which it uses to purchase a $460 television made in Korea by a Korean firm and a $40 dinner at a local restaurant. As a result, U.S. GDP a. does not change. b. increases by $40. c. increases by $540. d. increases by $1000. ____ 30. In the economy of Ukzten in 2010, consumption was $3000, exports were $200, GDP was $8000, government purchases were $1000, and imports were $600. What was Ukzten’s investment in 2010? a. $3200 b. $3600 c. $3800 d. $4400 ____ 31. The economy's inflation rate is the a. price level in the current period. b. change in the price level from the previous period. c. change in the gross domestic product from the previous period. d. percentage change in the price level from the previous period. Table 24-1 The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel ____ 32. Refer to Table 24-1. If 2005 is the base year, then the CPI for 2005 was a. 83.3. b. 100. c. 120. d. 200. Table 24-4 The table below pertains to Wrexington, an economy in which the typical consumer’s basket consists of 20 pounds of meat and 10 toys. Year Price of Meat Price of a Toy 2004 $3 per pound $2 2005 $1 per pound $7 2006 $4 per pound $5 ____ 33. Refer to Table 24-4. If the base year is 2004, then the inflation rate in 2006 was a. 44.4%. b. 50%. c. 62.5%. d. 80%. Table 24-6. The table below applies to an economy with only two goods — hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. Year Price of hamburgers Price of hot dogs 2009 $5.00 $3.00 2010 5.50 3.30 2011 5.61 3.63 ____ 34. Refer to Table 24-6. Between 2009 and 2011, the cost of living increased by a. 6 percent. b. 19 percent. c. 14 percent. d. 17 percent. ____ 35. Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called a. deflation. b. inflation. c. unmeasured quality change. d. substitution bias. ____ 36. If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is a. -9.5 percent. b. -4.5 percent. c. 4.5 percent. d. 9.5 percent. ____ 37. If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no a. cyclical unemployment. b. frictional unemployment. c. natural rate of unemployment. d. structural unemployment. ____ 38. Suppose the demand for construction workers increased and the demands for textile and steel workers diminished. This is an example of a. frictional unemployment created by efficiency wages. b. structural unemployment created by efficiency wages. c. frictional unemployment created by sectoral shifts. d. structural unemployment created by sectoral shifts. ____ 39. Unemployment insurance a. may improve the ability of the economy to match workers with appropriate jobs. b. reduces the job search efforts of the unemployed. c. increases the amount of frictional unemployment in the economy. d. All of the above are correct. ____ 40. Minimum wages create unemployment in markets where they create a a. shortage of labor. Unemployment of this type is called frictional. b. shortage of labor. Unemployment of this type is called structural. c. surplus of labor. Unemployment of this type is called frictional. d. surplus of labor. Unemployment of this type is called structural. Short Answer (20 points) 41. 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. (Ignore the financial capital market) (2 pts) 42. Which of the following statements are positive and which are normative? (6 pts) 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. 43. Fill in the table below, showing whether equilibrium price and equilibrium quantity go up, go down, stay the same, or change ambiguously. (9 pts) No Change in Supply An Increase in Supply A Decrease in Supply No Change in Demand An Increase in Demand A Decrease in Demand 44. In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing. (3 pts) Food Clothing 2002 price per unit $4 $10 2003 price per unit $6 $20 a. What are the percentage increases in the price of food and in the price of clothing? b. What is the percentage increase in the CPI? c. Do these price changes affect all consumers to the same extent? Explain. [Show More]

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