Midterm 1

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Specialization in production is important primarily because it

results in greater total output

A normative statement is one that

is based in value judgements

Which of the following would be most lkely to shift the production possibilities curve to the irght

an improvement in the literacy level and general level of education

the invisible hand refers to the

notion that, under competition, decisions motivated by self-interest promote the social interest

two major virtues of the market system are that it

allocates resources effienctly and allows economic freedom

In terms of the circular flow diagram, businesses obtain revenue through the _______ market and make expenditures in the _______ market

product; resource

Markets explained on the basis of supply and demand

assume many buyers and many sellers of a standardized product

Graphically, the market demand curve is

the horizontal sum of individual demand curves

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes

the income effect

The demand curve for a product might shift as the result of a change in

all of these

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are

inferior goods

other things equal, which of the following might shift the demand curve for gasoline to the left?

the development of a low-cost electric automobile

Refer to the diagram on the right. An increase in quantity supplied is depicted by a

move from point y to point x

an increase in the price of product A will

increase the demand for substitute product B

The quantity demanded of a product increases as its price declines because the

demand curve is downsloping

an increase in the quantity demanded means that

price has declined and consumers therefore want to purchase more of the product

The largest functional share of the national income consists of

wages and salaries

As it relates to corporations, the principal agent problem is that:

the goals of corporate managers(the agents) may not match the goals of the corporate owbers (the principlas)

Real GDP is preferred to nominal GDP as a measure of economic performance because

nominal GDP uses current prices and thus may over or understate true changes in output

Why are economists concerned about inflation?

inflation lowers the standard of living for people whose income does not increase as fast as the price level

A nation's gross domestic product:

is the dollar value of all final output produced within the borders of the nation

GDP excludes

the market value of unpaid work in the home

Net exports are

exports less imports

Value added refers to

the difference between value of a firm's output and the value of the inputs it has purchased from others

Real GDP measures

current output at base year prices

Historically, real GDP has increased less rapidly than nominal GDP because

the general price level has increased

The fact that nominal GDP has risen faster than real GDP

suggests that the general price level has risen

Refer to the above data. If year 3 is chosen as the base year, the price index for year 1 is


Refer to the above dat. The nominal GDP for year 4 is:


Refer to the above data. Real GDP for year 5 is:


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