Texas A&M University (TAMU) ECON 203 Principles of Economics Exam 1 Practice

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• Which index measures the cost of living?
• What does the Production Possibilities Frontier illustrate?
• Diane's salary year 1 was 10 thousand dollars and year 2 was 14 thousand dollars. If CPI Year 1 = 120 and CPI Year 2 = 180, has her real salary increased or decreased?
• Which term describes how fast the overall level of prices is changing?
• Which statement expresses the law of demand?
• The ___ is the line or curve that shows all possible combinations of two outputs that can be produced using all available resources.
• Which measure counts output produced by permanent residents (nationals) of the country?
• Which statement about a price floor is true when set above the market-clearing wage?
• Production Possibilities Frontier (PPF) represents ...
• How do you compute marginal utility per dollar?
• What are the three things total output of an economy allows us to measure?
• If marginal cost is above average total cost, what happens to ATC?
• A technological improvement in production typically affects costs and supply.
• Which term describes a shortage?
• Which statement about public goods’ excludability and rivalry is true?
• What is cross-price elasticity of demand?
• Indexing is designed to do what?
• What is a common resource and what problem does it create?
• Which bias occurs when new products are not included in CPI because diffusion is not complete?
• What can you predict about the new market equilibrium when ONLY one curve increases/decrease?
• In response to a surplus, which of the following tends to occur?
• Which transaction would be counted as investment in GDP calculations?
• Which index best captures price changes for all goods and services produced domestically, including government and capital goods?
• The income approach to GDP is calculated as which of the following?
• Define marginal revenue and explain its relevance for a firm in imperfect competition.
• Which statement about trade and comparative advantage is true?
• If a domestic company produces a new batch of goods but does not sell them within the year, this production is counted as:
• In the expenditure approach to GDP, which component typically contributes the largest share?
• What is a budget line and what does it illustrate?
• For an inferior good, what happens to demand when income increases?
• If the number of consumers decreases, how will the market reach a new equilibrium?
• Net Exports is best described as which of the following?
• A good with many substitutes and a large share of the budget has what type of price elasticity of demand?
• How do public goods differ from private goods? Provide an example.
• What is efficiency in a market and how do consumer and producer surplus relate to it?
• What is marginal utility?
• Which statement about competitive markets is true?
• The income approach yields the same result as which approach?
• Which index measures the prices of goods and services produced in the country?
• Which of the following is NOT a non-price determinant of demand?
• ___ shows how much the local currency is undervalued or overvalued by the official exchange rate (i.e. how much the cost of living is cheaper or more expensive).
• What is consumer surplus?
• GDP tells you about a country's living standards not its cost-of-living standards.
• What are the gains when two countries engage in specialization and trade?
• At equilibrium, what is true about quantity demanded and quantity supplied?
• Which statement describes the relationship along a linear demand curve between price and quantity demanded?
• In the short run, how many inputs are fixed?
• What is producer surplus?
• If the market price is above the equilibrium price, what typically occurs?
• True or False: Every country has comparative advantage in something.
• If demand increases while supply is perfectly inelastic, what happens to price and quantity?
• Which index is based on the prices of merchandise that is exported or imported?
• Which measure counts production within a country?
• What factors determine the price elasticity of demand?
• What is disequilibrium?
• Which index measures the prices of goods and services purchased by firms?
• When there is labor specialization, the PPF is a ___ to the origin.
• Which of the following would shift the supply curve but not the demand curve?
• Which is NOT included in official GDP?
• What does the Production Possibility Frontier (PPF) illustrate?
• Which statement is normative?
• Distinguish between the short-run and long-run perfectly competitive market outcomes.
• If demand increases while supply is perfectly inelastic, what happens to price and quantity?
• How does a movement along the demand curve differ from a shift in the demand curve?
• How do you calculate CPI?
• Which of the following is a limitation of GDP per Capita?
• Which statement is true about costs?
• GDP measures production within the country; GNP measures production by nationals regardless of location. Which of the following describes this difference most accurately?
• The measure of total production within a country is called
• If real wages fall when prices rise and nominal wages rise, which statement is most accurate?
• If the price of internet calling decreases, how does it affect the market for cellphones?
• How is the inflation rate calculated using the GDP Deflator?
• Ceteris paribus means what in the context of the Law of Demand?
• Which transaction would NOT count toward US GDP?
• On a bowed-out PPF, moving along the curve shows increasing opportunity costs.
• GDP per capita might be misleading because it does not account for which factor?
• What is another name for Indexing?
• If the supply curve for cellphones shifts left due to higher production costs, what happens to price and quantity?
• ___ help describe differences in prices across locations.
• How would you find the real value of your salary in 2017 when comparing it to a salary in 1995?
• Which statement about a Giffen good is correct?
• Which item is typically counted as part of wages in the income approach to GDP?
• After a tax is imposed on a good, what typically happens to the price paid by buyers, the price received by sellers, and the quantity traded?
• Producer surplus under an upward-sloping supply curve is:
• In the context of tariffs, what is likely to happen to the domestic price of imported goods?
• What would we see at the initial equilibrium price just after a decrease in the number of consumers?
• If the price of cottage cheese falls, how does it affect the market for skim milk, assuming the two products use the same inputs?
• In the income approach to GDP, which of the following is included as part of wages?
• Absolute advantage is best described as ...
• PPF points inside indicate underutilized resources.
• Which of the following lists the five non-price determinants of demand?
• Which term describes a surplus?
• If production technology improves, what happens to marginal costs and the supply curve?
• What is fixed cost?
• Which are the five common demand shifters?
• Which of the following are gains to society when countries decide to specialize?
• In Year X, inflation is equal to 50%. It means that
• What is Quality Bias?
• What is the effect of a tax on the price paid by buyers and price received by sellers?
• What is the difference between a monopoly and perfect competition in terms of price setting?
• Which of the following lists contains non-price determinants of supply?
• Which of the following is NOT one of the five items not counted in the expenditure approach?
• The point where MC intersects ATC corresponds to:
• According to the law of demand, what happens to quantity demanded when price rises?
• What is Outlet Bias?
• The BLS tries to come up with a basket that represents a ___.
• Absolute advantage can exist in one good and not in another.
• Hedonic pricing adjusts for changes in what?
• If technology improves and available resources increase, what happens to the PPF?
• What does GDP tell you about a country?
• Suppose the cost of sugar, an input for making ice cream, increases. How would it affect the market for ice cream?
• Which expression correctly calculates the inflation rate using CPI?
• Which of the following is included in GDP under the expenditure approach?
• Which statistic is computed as Nominal GDP divided by Real GDP (times 100)?
• Houses occupied by owners are assumed to be rented by owners and imputed rent is included in which GDP component?
• If inflation is 50% year over year, what happens to the purchasing power of money?
• The GDP deflator is calculated as which ratio?
• In the expenditure approach, how are imports treated?
• In the expenditure approach to GDP, which of the following is not counted as part of domestic production?
• Which statement describes the Market Basket?
• If cellphone calling plans become more expensive, holding all else constant, what happens to the equilibrium price and quantity in the cellphone market?
• Explain why a monopoly causes a deadweight loss compared to perfect competition.
• Total surplus in a market equals:
• If the price of butter increases, and butter and margarine are substitutes, what happens to the market for margarine?
• Consumers are ___ if their incomes are adjusted for inflation using CPI.
• The ___ illustrates the relationship between the quantity demanded and price, holding non-price determinants constant.
• In constructing the CPI, the basket reflects expenditures of a typical household. This is most closely associated with which concept?
• Which item should be accounted in GDP but is not counted due to data collection limitations?
• In greatest to least order of demand, what are the four categories of the expenditure approach?
• Which of the following is NOT a CPI bias that overstates inflation?
• What can you predict about the new market equilibrium when BOTH curves either increase/decrease in the same direction?
• According to the expenditure approach, GDP is equal to which of the following?
• If the price is above the equilibrium price, a market tends to move toward equilibrium by...
• If a point lies inside the production possibilities frontier, this indicates...
• When analyzing price and quantity supplied, which curve is used with non-price determinants held constant?
• A ___ displays the quantities demanded at various prices.
• Which statement best distinguishes a normal good from a Giffen good?
• ___ estimates what the price of the item would be without the improved features.
• The ___ is the amount of a particular good that producers are willing and able to sell at a given price.
• Which statement best describes how taxes affect market outcomes?
• If the price level increases and real output remains constant, which measures rise?
• What constitutes an urban consumer?
• Which of the following would shift the supply curve to the right (increase supply)?
• Which statement best defines an externality?
• The size of an economy is referred to as which terms?
• How does opportunity cost relate to a consumer's choice between two goods?
• Which statement is correct about ATC and MC?
• Which statement correctly contrasts CPI and GDP Deflator?
• To compare a 2017 salary to a 1995 salary, you multiply the 1995 salary by which ratio?
• The equilibrium price and quantity are determined by the intersection of which curves?
• GDP per capita might be misleading because it does not account for
• Which of the following are the three approaches used to calculate GDP?
• Which statement about CPI and the GDP deflator is true?
• What is deadweight loss and when does it occur?
• What illustrates the relationship between quantity supplied and price, holding other non-price determinants constant?
• Which outcome is associated with gains from specialization and trade between countries?
• Explain elasticity of demand.
• How does demand elasticity vary along a linear demand curve?
• Consumer surplus under a market with a downward-sloping demand curve is:
• How do you calculate GDP Deflator?
• State the Law of Demand.
• Which statement about GDP and living standards is true?
• Which is not a component of the expenditure approach?
• What is the difference between a normal good and an inferior good?
• Which of the following is an example of a non-tradable good?
• What is the practice of automatically increasing payments in proportion to the cost of living?
• New Product Bias in CPI is also known as what?
• Suppose the price of a supplementary good decreases and productivity increases in the cellphone industry, and a cellphone is a normal good. How would it affect the equilibrium in the cellphone market?
• ___ is when goods and services are valued at constant prices.
• Which statement about the budget line is true?
• Imputed Rent is included in which GDP category?
• A decrease in the price of a substitute input used in the production of cellphones would likely cause the quantity supplied of cellphones to do what, holding other factors constant?
• If income and tastes rise, the demand curve will:
• What is New Product Bias (innovation bias)?
• In imperfect competition, what is the profit-maximizing condition?
• What happens if prices are too low in relation to quantity demanded/supplied?
• Which statement best describes the relationship between absolute and comparative advantage?
• Which statement about GDP accounting is true?
• In GDP calculations, net exports are defined as
• What are the four categories of the expenditure approach?
• What is the Budget Constraint and how does it relate to consumer choice?
• ___ goods and services are valued at current prices.
• If the price level rises while the quantity of goods produced remains the same, which GDP measure increases?
• If quality increases substantially while price remains unchanged, this bias is called?
• Which statement about a minimum wage (price floor) is true when set above the market wage?
• What can you predict about the new market equilibrium when BOTH curves increase/decrease in opposite directions?
• Which index measures price level changes for a fixed basket of goods over time?
• The statement 'The demand schedule displays the quantities demanded at various prices' is true.
• Social security contributions made by the employer will be __ in the GDP calculated by the income approach
• What term refers to the quantity demanded at a given price?
• Which would be included in official GDP?
• What is the law of supply?
• What is the elasticity of supply and what are its determinants?
• In the expenditure approach, NX stands for Net Exports, which equals Exports minus Imports. What does Exports represent?
• If one country has a lower opportunity cost in producing good X than another country, it has a comparative advantage in X.
• What is the concept of marginal analysis in decision making?
• Purchasing Power Parity is most closely associated with comparing what across countries?
• The ___ says that purchasing power in different countries should be the same when stated in a common currency.
• An increase in government purchases, holding other factors constant, will:
• What is the difference between a shift in the supply curve and a movement along the supply curve?
• If CPI in Year X is 50%, which interpretation is correct?
• Substitution Bias is best described as:
• Mutual gains from trade arise when countries specialize according to comparative advantage.
• Comparative advantage is defined as ...
• The value-added approach calculates the value that each transaction adds to the economy. Which option completes the sentence?
• What is a price ceiling and what is a typical effect?
• Which statement best captures the meaning of scarcity in economics?
• If CPI year 1 = 100 and CPI year 2 = 105, what is the inflation rate?
• How do you calculate the inflation rate using the GDP Deflator?
• Suppose income increases and the price of a substitute in production increases. Analyzing a market for an inferior good, what happens to the quantity demanded?
• In the GDP approach, which goods are counted?
• Which expression represents GDP per Capita?
• If a good has many close substitutes, its price elasticity of demand is likely to be...
• On a bowed-out Production Possibilities Frontier, the opportunity cost of producing additional units of a good is constant.
• The points outside the PPF are not attainable given current level of ___ and ___.
• If a non-price factor changes, this affects the market what?
• Which statement about the Production Possibilities Frontier is true?
• Which statement describes what GDP measures?
• Opportunity cost is the value of the next best alternative forgone when choosing one option.
• When should a perfectly competitive firm shut down in the short run?
• In a perfectly competitive market, the profit-maximizing rule is to produce the quantity where:
• What happens if prices are too high in relation to quantity demanded/supplied?
• What is income elasticity of demand and its sign for normal vs inferior goods?
• What are the four parts of an investment under the expenditure approach?
• Reallocating resources from good A to good B along the PPF results in a higher output of A.
• How is GDP per Capita calculated?
• What displays the quantities supplied at various prices?
• If input prices rise, how does the supply curve respond?
• What is the law of diminishing marginal utility and why is it important for consumer choice?
• Which of the following is NOT a determinant of supply?
• Explain the Export (X) part of the expenditure approach
• What happens to equilibrium when supply increases while demand remains constant?
• If price is higher than marginal cost in a perfectly competitive firm, the firm should:
• Which item is not counted in GDP because it represents a transfer?
• Which statement is NOT a feature of the Production Possibilities Frontier?
• Which index shows how much the cost of a market basket has changed relative to the base period?
• In the long run under perfect competition, why do economic profits tend to zero?
• What are 3 factors why The Theory of Purchasing Power Parity (PPP) almost never holds?
• Which index represents the size of the change in the overall price level of the typical consumer goods?
• Deadweight loss from a tax arises because: