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65 Cards in this Set
- Front
- Back
When a tax is imposed on a good, the equilibrium quantity of the good always
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decreases.
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when a tax is placed on the buyers of a product, a result is
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that buyers effectively pay more than before and sellers effectively receive less than before.
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When a good is taxed, the burden of the tax falls more heavily on the side of the market
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that is more inelastic.
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when a tax on a good is enacted, buyers and sellers
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share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.
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A tax placed on a good causes
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the size of the market for the good to shrink.
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When a tax is levied on buyers of a good, a wedge is placed
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between the price buyers pay and the price sellers effectively receive
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A tax on a good gives sellers an incentive
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to produce less of the good than they otherwise would produce.
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When the government places a tax on a product, the cost of the tax to buyers and sellers
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exceeds the revenue raised from the tax by the government
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Relative to a situation in which liquor is not taxed, the imposition of a tax on liquor causes
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the equilibrium quantity of liquor demanded to decrease and the equilibrium quantity of liquor supplied to decrease.
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Total surplus with a tax is equal to
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consumer surplus plus producer surplus plus tax revenue.
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A deadweight loss is a consequence of a tax on a good
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because the tax induces buyers to consume less, and sellers to produce less, of the good.
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Taxes distort incentives and this distortion
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causes markets to allocate resources inefficiently
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The greater the price elasticities of demand and supply for the good
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., the greater the deadweight loss from the tax
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The Laffer curve relates
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the tax rate to tax revenue raised by the tax
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Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon
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As a result, the deadweight loss of the tax necessarily increases
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As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the tax revenue
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increases at first, but it eventually peaks and then decreases
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If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price
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the country will be an importer of the good
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If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price
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the country will be an exporter of the good
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assume , for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that
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in the production of steel, other countries have a comparative advantage over Canada and Canada will import steel.
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Assume, for the U.S., that the domestic price of beef without international trade is lower than the world price of beef. This suggests that
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in the production of beef, the U.S. has a comparative advantage over other countries and the U.S. will export beef.
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Trade raises the economic well-being of a nation in the sense that
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the gains of the winners exceed the losses of the losers
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When a country allows trade and becomes an exporter of a good
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consumer surplus decreases and producer surplus increases
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Within a country, the domestic price of a product will equal the world price if
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the country allows free trade.
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For any country that allows free trade, the domestic price
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is equal to the world price.
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The world price of a pound of T-bone steak is $9.00. Before Guatemala allowed trade in beef, the price of a pound of T-bone steak there was $12.00. Once Guatemala began allowing trade in beef with other countries, Guatemala began importing T-bone steak and the price per pound in Guatemala
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decreased to $9.00
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A tariff on a product makes
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domestic sellers better off and domestic buyers worse off
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A tariff on a product
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increases the domestic quantity supplied.
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Both tariffs and import quotas
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decrease the quantity of imports and raise the domestic price of the good
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A major difference between tariffs and import quotas is that
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tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.
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For an economy, expenditure is equal to income because
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for every sale there is a buyer and a seller.
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ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct?
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Only Ralph’s payments are included in GDP.
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A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute
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$200 to GDP
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One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?
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GDP increases by $6.00.
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Goods that go into inventory and are not sold during the current period are included in current period GDP as
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inventory investment.
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If a U.S. citizen buys a television made in Korea by a Korean firm, U.S. net exports
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decrease and U.S. GDP is unaffected.
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A transfer payment is
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a payment made by government, but not in exchange for a currently produced good or service
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If net exports is a negative number for a particular year, then the value of foreign goods purchased
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exceeded the value of goods sold to foreigners during the year
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In the equation Y = C + I + G + NX, Y represents
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the economy’s total expenditure
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In a certain economy in 2005, households spent $1,000 on goods and services; purchases of capital equipment, inventories, and structures amounted to $350; government spent $450 on goods and services; and the value of imports exceeded the value of exports by $50. It follows that 2005 GDP for this economy was
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$1,750.
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If real GDP doubles and the GDP deflator doubles
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, then nominal GDP quadruples.
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Which statement represents most correctly the relationship between nominal GDP and real GDP?
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Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.
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In the CPI, goods and services are weighted according to
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how much consumers buy of each good or service.
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The steps involved in calculating the consumer price index, in order, are as follows:
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Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index.
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If this year the CPI is 110 and last year it was 100, then the price level as measured by the CPI has
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increased by 10 percent.
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By far the largest category of goods and services in the CPI basket
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is housing
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The substitution bias in the consumer price index refers to the fact that
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consumers substitute toward goods that have become relatively less expensive.
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The GDP deflator reflects
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the current level of prices relative to the level of prices in the base year.
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An important difference between the GDP deflator and the consumer price index is that
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the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of some goods and services bought by consumers
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The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?
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The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.
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The nominal interest rate tells you
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how fast the number of dollars in your bank account rises over time
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The real interest rate tells you
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how fast the purchasing power of your bank account rises over time.
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In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was their productivity?
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1/8 cabinet per hour
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Using the production function and notation in the text, K/L measures
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physical capital per worker.
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If there are diminishing returns to capital, then increases in the capital stock
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increase output by ever smaller amounts.
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In the long run an increase in the saving rate
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raises the levels of both productivity and income.
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Which of the following best describes the response of output as time passes to an increase in the saving rate?
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The growth rate of output increases, but diminishes to its former level as time passes.
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The logic behind the catch-up effect is that
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new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
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Over extended periods of time population growth has
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uncertain effects on the standard of living
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Outward-oriented policies have generally led to
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high growth for the countries that pursued them.
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Ralph puts money in the bank and earns a 5 percent nominal interest rate. Then, if the inflation rate is 3 percent,
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Ralph will have 5 percent more money, which will purchase 2 percent more goods.
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Samantha deposits $1,000 in a saving account that pays an annual interest rate of 4 percent. Over the course of a year the inflation rate is 1 percent. At the end of the year Samantha has
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$40 more in her account, and her purchasing power has increased by about $30.
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Ms. Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year the price level went up by 15 percent. Which of the following statements is correct?
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Ms. Smith's repayment will give the bank less purchasing power than it originally loaned her.
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Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour.
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Emerson’s productivity and output are greater than Waldo’s.
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Which of the following is human capital?
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understanding how to use a company's accounting software
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GDP deflator equation
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nom gdp/real gdp *100
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