Department of Economics University of Lethbridge Econ 1010A Practice Questions Chapter 1 1. Maintaining objectivity is easiest in A) positive economics. B) the science of economics. C) normative economics. D) subjective economics.
2. The slopes of curves
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Quick Quizzes 1. Figure 1 shows the demand curve for turkey. The price of turkey is P1 and the consumer surplus that results from that price is denoted CS. Consumer surplus measures buyers' willingness to pay (measured by the d
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Quick Quizzes 1. A price ceiling is a legal maximum on the price at which a good can be sold. Examples of price ceilings include rent control, price controls on gasoline in the 1970s, and price ceilings on water during a drough
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Quick Quizzes 1. The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the perc
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Quick Quizzes 1. A market is a group of buyers (who determine demand) and a group of sellers (who determine supply) of a particular good or service. A competitive market is one in which there are many buyers and many sellers of
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Quick Quizzes 1. Figure 1 shows a production possibilities frontier for Robinson Crusoe between gathering coconuts and catching fish. If Crusoe lives by himself, this frontier limits his consumption of coconuts and fish, but if
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Quick Quizzes 1. Economics is like a science because economists devise theories, collect data, and analyze the data in an attempt to verify or refute their theories. In other words, economics is based on the scientific method.
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Quick Quizzes 1. The four principles of economic decisionmaking are: (1) people face tradeoffs; (2) the cost of something is what you give up to get it; (3) rational people think at the margin; and (4) people respond to incenti
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Quick Quizzes 1. Monetary and fiscal policies work with a lag. Monetary policy works with a lag because it affects spending for residential and business investment, but spending plans for such investment are often set in advanc
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Quick Quizzes 1. The Phillips curve is shown in Figure 1.
Figure 1 To see how policy can move the economy from a point with high inflation to a point with low inflation, suppose the economy begins at point A in Figure 2. If pol
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Quick Quizzes 1. A decrease in the money supply increases the equilibrium interest rate. The decrease in the money supply reduces aggregate demand because the higher interest rate causes households to buy fewer houses, reducing
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Quick Quizzes 1. Three key facts about economic fluctuations are: (1) economic fluctuations are irregular and unpredictable; (2) most macroeconomic quantities fluctuate together; and (3) as output falls, unemployment rises. Eco
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Quick Quizzes 1. The supply of loanable funds comes from national saving. The demand for loanable funds comes from domestic investment and net capital outflow. Supply in the market for foreigncurrency exchange comes from net ca
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Quick Quizzes 1. Net exports are the value of a nation's exports minus the value of its imports, also called the trade balance. Net capital outflow is the purchase of foreign assets by domestic residents minus the purchase of d
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Quick Quizzes 1. When the government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year, prices and nominal interest rates will increase dramatically. The government may be
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Quick Quizzes 1. The three functions of money are: (1) medium of exchange; (2) unit of account; and (3) store of value. Money is used as a medium of exchange because money is the item people use to purchase goods and services.
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Quick Quizzes 1. The unemployment rate is measured through a survey of 60,000 households to find out the percentage of the labor force that is unemployed. The unemployment rate overstates the amount of joblessness because some
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Quick Quizzes 1. The present value of $150 to be received in 10 years if the interest rate is 7 percent is $150/ (1.07)10 = $76.25. There are three ways in which a riskaverse person may reduce the risk he faces: (1) purchase in
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Quick Quizzes 1. A stock is a claim to partial ownership in a firm. A bond is a certificate of indebtedness. They are different in numerous ways: (1) a bond pays interest (a fixed payment determined when the bond is issued), wh
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Quick Quizzes 1. The approximate growth rate of real GDP per person in the United States is 1.81 percent (based on Table 1) from 1870 to 2000. Countries that have had faster growth include Japan, Brazil, Mexico, Canada, Germany
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Quick Quizzes 1. The consumer price index tries to measure the overall cost of the goods and services bought by a typical consumer. It is constructed by surveying consumers to fix a basket of goods and services that the typical
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Quick Quizzes: 1. Gross domestic product measures two things at once: (1) the total income of everyone in the economy; and (2) the total expenditure on the economy's output of goods and services. It can measure both of these th
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Quick Quizzes 1. Buyers of life insurance will likely have higher than the average death rates. Because those with greater risks of death are more likely to buy life insurance, the price of life insurance will reflect the costs
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Quick Quizzes
Figure 1 1. A person with an income of $1,000 could purchase $1,000/$5 = 200 pints of Pepsi if she spent all of her income on Pepsi or she could purchase $1,000/$10 = 100 pizzas if she spent all of her income on p
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Quick Quizzes 1. The poverty rate measures the percentage of the population whose family income falls below an absolute level called the poverty line. It tells you something about the distribution of income at the lower end of
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Quick Quizzes 1. A compensating differential is a difference in wages that arises to offset the nonmonetary characteristics of different jobs. Examples include coal miners who earn extra wages to compensate them for dangerous w
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Quick Quizzes 1. The marginal product of labor is the increase in the amount of output from an additional unit of labor. The value of the marginal product of labor is the marginal product of labor times the price of the good. A
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Quick Quizzes 1. The three key attributes of monopolistic competition are: (1) there are many sellers; (2) each firm produces a slightly different product; and (3) firms can enter or exit the market freely. Figure 1 shows the l
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Quick Quizzes 1. Oligopoly is a market structure in which only a few sellers offer similar or identical products. Examples include the market for tennis balls and the world market for crude oil. Monopolistic competition is a ma