Exam 2: Thinking Like an Economist

When economists disagree about whether the government should tax a household's income or its consumption, they are expressing a difference in

In the circular flow diagram, when Daphne purchases a new mobile phone, she participates in the markets for

In the simple circular-flow diagram,

Figure 2-5 -Refer to Figure 2-5. If this economy devotes all of its resources to the production of dryers, then it will produce

A production possibilities frontier will be bowed outward if some of the economy's resources are better suited to producing one good than another.

Most economists agree that a large federal budget deficit has what type of effect on the economy?

Which of the following is an example of using the scientific method with a natural experiment?

A production possibilities frontier has a bowed shape if the opportunity cost is constant at all levels of output.

A microeconomist - as opposed to a macroeconomist - might study

Table 2-1 The following table contains some production possibilities for an economy for a given month. -Refer to Table 2-1. If the production possibilities frontier is bowed outward, then "?" could be

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?

For economists, conducting experiments is often difficult and sometimes impossible.

Economic models

Figure 2-1 -Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?

Macroeconomics is the study of economy-wide phenomena.

The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle. Draw a rancher's production possibilities frontier showing increasing opportunity cost of cattle production in terms of prairie dog production. Using a separate graph for each situation, show what would happen to the initial production possibilities frontier in each of the following situations: a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs. b. As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing. c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs. d. The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing. e. A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.

Joe and Fred are economists. Joe thinks that the wealthiest 10% of the US population should be taxed a rate higher than the rest of society because they can better afford it. Fred thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Joe and Fred