Econ Midterm 1

What is the difference between positive statements and normative statements?

• Positive = economic optimism

  Normative = economic pessimism

• Positive = the way things are Normative = the way things should be

• Positive = advice on policy matters

  Normative = supported by science

• Academic economists = normative

  Government economists = positive

If he devotes all of his available resources to cantaloupe production, a farmer can produce 120 cantaloupes.  If he sacrifices 1.5 watermelons for each cantaloupe that he produces, it follows that

• if he devotes all of his available resources to watermelon production, then he can produce 80 watermelons.

• he cannot have a comparative advantage over other farmers in producing cantaloupes.

• his opportunity cost of one watermelon is 2/3 of a cantaloupe.

• his production possibilities frontier is bowed-out.

When quantity demanded increases at every possible price, we know that the demand curve has

• shifted to the left

• shifted to the right

• not shifted; rather, we have moved along the demand curve to a new point on the same curve.

• not shifted; rather, the demand curve has become steeper.

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?

• (quantity demanded = 2, price = $1.50)

• (quantity demanded = 4, price = $2.50)

• (quantity demanded = 10, price = $1.00)

• (quantity demanded = 16, price = $2.50)

Which of the following events would cause both the equilibrium price and equilibrium quantity of potatoes to decrease if potatoes are an inferior good?

• an increase in consumer income

• a decrease in consumer income

• greater government restrictions on agricultural chemicals

• fewer government restrictions on agricultural chemical

 Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts.  Also suppose the US has an absolute advantage in the production of both semiconductors and auto parts.  The US should

• not trade semiconductors and auto parts with Mexico.

• import semiconductors from Mexico and export auto parts to Mexico.

• export semiconductors to Mexico and import auto parts from Mexico.

• export both semiconductors and auto parts to Mexico.

Which of the following changes would not shift the supply curve for a good or service?

• a change in production technology

• a change in the price of the good or service

• a change in expectations about the future price of the good or service

• a change in input prices

If, at the current price, there is a surplus of a good, then

• sellers are producing more than buyers wish to buy.

• the market must be in equilibrium.

• the price is below the equilibrium price.

• quantity demanded equals quantity supplied.

 In the circular-flow diagram,

• firms are buyers in the markets for goods and services.

• households are sellers in the markets for the factors of production.

• firms are sellers in the markets for factors of production and in the markets for goods and services.

• dollars that are spent on goods and services flow directly from firms to households.

Suppose that a decrease in the price of good X results in fewer units of good Y being sold.  This implies that X and Y are

• complementary goods.

• normal goods.

• inferior goods.

• substitute goods.