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___ 25. According to the book “Capitalism and Freedom”: a. Capitalism enables the government to control economic activities through central planning b. Capitalism provides for the coordination of the economic activities of millions of people through the voluntary cooperation of individuals c. Both of the above d. Neither of the above ___ 26. According to Milton Friedman, the proper functions of government include: a. Controlling a nation’s international trade b. Establishing a minimum wage law c. Establishing and enforcing property rights and contract rights d. All of the above Problems: 1. What are the two general sources of economic growth? 2. Explain the capitalist vision on the following topic: government. 3. Explain the socialist vision on the following topic: market prices. 4. Explain how the question of “for whom to produce” is determined in a market economy. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 2 - 15 Trade and Economic Systems
Answers for Chapter 2 Fill-in-the-blanks: 1. Consumer’s 5. increasing opportunity 2. Producer’s 6. growth 3. externality 7. output, resource 4. production possibilities Multiple Choice: 1. a. 10. c. 19. c. 2. d. 11. d. 20. b. 3. c. 12. a. 21. d. 4. c. 13. d. 22. b. 5. b. 14. d. 23. a. 6. c. 15. a. 24. a. 7. b. 16. b. 25. b. 8. b. 17. d. 26. c. 9. d. 18. d. Problems: 1. The two general sources of economic growth are: a. An increase in the quantity of resources. b. An advance in technology. 2. According to the capitalist vision, government is inherently inefficient and should be limited. Government cannot possess as much information as the millions of individual decision makers in the private market. Nor can government coordinate the competing desires of the millions of individual decision makers as well as prices determined in free markets. Nor is the government motivated to secure the self-interest of the millions of individual decision makers. Government may be more responsive to special-interest groups than to concerns about the general welfare. Since the outcome reached in the market is generally efficient, any government intervention is likely to reduce economic efficiency. 3. According to the socialist vision, market prices are often manipulated by powerful businesses. Big businesses often face few competitors and may cooperate with their competitors to manipulate prices and consumer demand. The government should be willing to use price controls to ensure that prices are fair for all. 4. In a market economy, the “for whom to produce” question is determined by the distribution of income. The distribution of income is determined by the markets for resources. Answers to Think Like an Economist: If the current system is capitalism, it is likely that Professor Dissident’s book will be published. The publishing companies will be owned by private individuals, with a goal of profit-maximization. Even if a publishing company disagrees with Professor Dissident’s opinion, it will want to publish any book that is likely to appeal to a large number of readers, in order to maximize profits. If the current system is socialism, it is not likely that Professor Dissident’s book will be published. Though the publishing companies will be owned by “the people”, they will be controlled by the government. It is not in the best interest of the government to publish Professor Dissident’s book. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Trade and Economic Systems 2 - 16
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PRINCIPLES OF ECONOMICS JEFF HOLT S
Page 4 and 5: Principles of Economics, 6th Editio
Page 6 and 7: 16. Study Guide for Chapter 7 17. C
Page 8 and 9: 11. Appendix: Book Review - “The
Page 10 and 11: 20. Appendix: The NCAA Cartel 21. S
Page 12 and 13: Introduction: A Brief History of U.
Page 14 and 15: In the twentieth century, per capit
Page 16 and 17: Appendix: The 35 Largest National E
Page 18 and 19: Multiple Choice: ___ 1. The Jamesto
Page 20 and 21: 2. Describe the economic cost of th
Page 22 and 23: Chapter 1 Scarcity and Choices The
Page 24 and 25: Example 5B: At the end of 1982, the
Page 26 and 27: Example 11: When Cindy quits her jo
Page 28 and 29: consequences may result in failure
Page 30 and 31: An upward sloping curve (as in Exam
Page 32 and 33: In making decisions, humans tend to
Page 34 and 35: 5. ______________________ _________
Page 36 and 37: ___ 13. If the value of one variabl
Page 38 and 39: Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
Page 40 and 41: Chapter 2 Trade and Economic System
Page 42 and 43: Example 4B: The following quantitie
Page 44 and 45: 1. An increase in the quantity of r
Page 46 and 47: 3. For whom to produce? This is det
Page 48 and 49: The graph below illustrates the shi
Page 50 and 51: The two primary economic systems ar
Page 52 and 53: ___ 12. The capitalist vision sees
Page 56 and 57: Chapter 3 Demand, Supply, and Equil
Page 58 and 59: . For inferior goods, income and de
Page 60 and 61: The same information can be placed
Page 62 and 63: Not only does a free market elimina
Page 64 and 65: $7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
Page 66 and 67: Example 17: The graph below illustr
Page 68 and 69: Questions for Chapter 3 Fill-in-the
Page 70 and 71: ___ 12. Assuming a market originall
Page 72 and 73: $8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
Page 74 and 75: Chapter 4 Inflation and Unemploymen
Page 76 and 77: Computing the Rate of Inflation The
Page 78 and 79: Full Employment Though unemployment
Page 80 and 81: 3. Cyclical unemployment - due to d
Page 82 and 83: During the Great Depression, the ec
Page 84 and 85: Appendix: Think Like an Economist -
Page 86 and 87: Answer questions 8. and 9. based on
Page 88 and 89: ___ 25. The extension of unemployme
Page 90 and 91: Chapter 5 Measuring Total Output: G
Page 92 and 93: 5. Leisure. Leisure time is by defi
Page 94 and 95: The U.S. is a high per capita GDP c
Page 96 and 97: Example 17: In “An International
Page 98 and 99: The simple circular flow diagram be
Page 100 and 101: ___ 3. Which of the following would
Page 102 and 103: 2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
Page 106 and 107:
Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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___ 5. According to Say’s Law: a.
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3. On the graph below, draw an aggr
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Chapter 8 Keynesian Economic Theory
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Example 2B: The graph below illustr
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Example 5: Assume that the table be
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Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
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___ 8. If the consumption function
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3. If the MPC is .667, and investme
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Chapter 9 Fiscal Policy The basic e
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Keynesian Fiscal Policy Theory and
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Example 5A: The federal government
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The Laffer Curve What will happen t
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Appendix: The Importance of Incenti
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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
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Monetarist Transmission Mechanism C
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3. Borrowers do not have to seek ou
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Appendix: Book Review - “The Age
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Questions for Chapter 12 Fill-in-th
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___ 16. The primary source of incom
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7. According to Alan Greenspan, wha
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Chapter 13 Taxes, Deficits, and the
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Example 5: In 2015, Taxpayer A had
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of $5 and a quantity of 10 units. T
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The complexity of the tax law also
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the current government spending and
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cut of 1964. The top rate was lower
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___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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Chapter 22 Monopoly Of the four mar
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3. Exclusive ownership of an essent
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maximizing quantity (4 units) creat
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$22 - 20 - 18 - 16 - 14 - Deadweigh
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2. Negotiating, beginning at a high
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Legal barriers are created by gover
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___ 8. The slope of the demand curv
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Price Quantity 3. List some of the
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Chapter 23 Monopolistic Competition
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For Percomp (the perfect competitor
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Example 7A: The graph below represe
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Example 9: The Organization of the
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Example 12 illustrates the dilemma
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its current price and quantity. The
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___ 14. Game theory: a. is a method
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Answers for Chapter 23 Fill-in-the-
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Chapter 24 Factor Markets The basic
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$ $240 - 200 - 160 - 120 - 80 - 40
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Since producers will attempt to equ
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2. Differences in nonmoney aspects
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were his strikeouts, walks, and hom
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___ 3. To maximize profits, a produ
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___ 19. According to the book, “M
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Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
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Example 13B: General Ordnance prove
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Appendix: Present Value Table One f
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___ 4. An increase in expected rate
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Problems: 1. List and explain the t
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Chapter 27 Market Failure The basic
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External Benefit If a market genera
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Example 2: To encourage the consump
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$100 - 90 - 80 - MSC 70 - $ 60 - 50
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A common good is nonexcludable. Non
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___ 5. What government policy would
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4. Based on the information on the
Page 456 and 457:
Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
Page 538 and 539:
Short run production, 20-2-3 Short-
Page 540 and 541:
Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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