Download Chapters 1, 2, 3 Review Name ______ Below are three statements

Chapters 1, 2, 3 Review
1.
Name _________________________
Below are three statements. Indicate whether each one pertains to microeconomics
(MIC) or macroeconomics (MAC).
a. “The inflation rate in the United States hit its lowest level in the last twenty
years.”
Mac
b.
“The profits of Microsoft rose 20 percent during the past quarter.”
Mic
c. “Rains from El Nino again hit the California region causing severe flooding in
farms. The prices for citrus and produce are expected to rise sharply.”
Mic
2.
Below are three statements. Identify whether each is a positive or normative
statement.
a. The minimum wage should be increased so low-income workers can earn a
living wage.
Nor
b. The unemployment rate is too high and should be reduced through government
actions.
Nor
c. The rate of inflation was about 2 percent last year, an all time low for the past
decade.
Pos
3.
List the four resource categories and give a brief description of each.
Land
Labor
Capital
Entrepreneurs
4.
Differentiate between allocative efficiency and productive efficiency.
Making the "right product the right way”
5.
The production possibilities curve below show the hypothetical relationship between
the production of food and clothing in an economy.
Combination
A
B
C
D
E
Food
0
7
13
18
22
Clothing
4
3
2
1
0
a. What is the marginal opportunity cost of producing the second unit of clothing?
5
b. What is the total opportunity cost of producing the second unit of clothing?
9
c. What is the marginal opportunity cost of producing the third unit of clothing?
6
d. What is the total opportunity cost of producing the third unit of clothing?
15
6.
What is the economic rationale for the law of increasing costs?
As you switch from producing one product to produce
another you lose efficiency and cost increases marginally
7.
What changes must occur for the potential total output of the economy to grow?
Increase/ improve resources
trade
technology increases
8.
Illustrate the adjustments in the production possibilities curves in each of the
following situations for the U.S. economy.
a. the economy moves from full employment into a deep recession
b. the economy makes great strides in eliminating discrimination
c. the end of the cold war leads to cuts in military spendin
d. Congress significantly increases government spending for health and education
9.
In the below circular flow diagram, the household and business sectors are labeled
with arrows representing the flows of income and output labeled (a) through (f) and
the two appropriate markets labeled (g) and (h). Supply the correct descriptive titles
for each of these labels (a) through (h).
10. Give examples of a pair substitute goods and a pair complementary goods.
Water and soda
Dvds and dvd players
11. What is the difference between a change in demand and a change in quantity
demanded?
Change in demand requires one of the determinants of demand to have
happened while change in quantity is based only on a price change in
the item. The first moves the curve the second only moves on the
existing curve.
12. Illustrate the effect each of the following will have upon the supply of television sets?
Explain your reasoning in each case (give a determinate of supply).
a. an increase in the price of electronic equipment used in producing television
sets
Draw and increase in supply
b. a decline in the number of firms producing television sets
Draw and decrease in supply
c. a large new tariff on imported Japanese TV sets
Draw and decrease in supply
d. new inexpensive satellite dishes which make televisions more popular among
consumers
Draw and increase in supply
13. In the spaces below each of the following, indicate the [increase (+), decrease (–), or
indeterminate (?)] on equilibrium price (P) and equilibrium quantity (Q) of each of these
changes in demand and/or supply.
P
Q
a. Increase in demand, increase in supply
_____I_____ ___+______
b. Increase in demand, decrease in supply
_____+_____ ___I______
c. Decrease in demand, decrease in supply
_____I_____
___-_______
d. Decrease in demand, increase in supply
_____-_____
_____I____