Deca Economics Section 1

1. Which of the following data would a demand schedule display? a. the quantity of grapes sold based on price per pound b. the number of apples sold based on regional preferences c. the supply of bananas grown based on market demand d. the level of demand for kale based on changing market tastes e. the amount of avocados produced based on annual weather conditions

1. A A demand schedule shows the quantity demanded of a good or service at different price levels, such as the quantity of grapes sold based on price per pound. [13,1,2]

10. Which of the following concepts does a drought MOST exemplify? a. rationality b. gains from trade c. scarcity d. trade-offs e. opportunity cost

10. C Scarcity is one of the basic assumptions of economics. Scarcity implies that everything, including water, energy, and time, is limited. [6,2,3]

11. Which of the following concepts is NOT a basic assumption of economics? a. perfect competition b. gains from trade c. scarcity d. opportunity cost e. rationality

11. A The basic assumptions of economics are scarcity, tradeoffs, opportunity cost, gains from trade, and rationality. A perfectly competitive market is an economic model, not a basic assumption. Often, markets are not perfectly competitive. [6,2,2-7,2,2]

12. In one day, Axe can make 50 handles or 5 blades and Saw can make 24 handles or 2 blades. Why should they trade? a. Axe has an absolute advantage in making handles. b. Saw has a comparative advantage in making handles. c. Axe has a comparative advantage in making blades. d. Saw has an absolute advantage in making handles. e. Axe has an absolute advantage in making blades.

12. B A comparative advantage exists when a supplier has a lower opportunity cost in producing a good. When two producers trade goods, each should make the good for which it has the lower opportunity cost. [36,2,3]

13. BioNTech is good at vaccine development and Pfizer is good at vaccine manufacturing. When BioNTech shares its vaccine recipe in exchange for Pfizer producing them, they both receive a. scarcity b. trade-offs c. opportunity costs d. rationality e. gains from trade

13. E Gains from trade exist because people have different skill sets or resources. In this case, when people specialize in doing a certain task and trade the results, total surplus increases. [7,2,2]

14. In a closed economy, the domestic price of cherries is the same as the world price. Opening to trade will a. reduce consumer surplus in the cherry market b. increase total surplus in the cherry market c. have no effect on the cherry market d. create deadweight loss in the cherry market e. increase producer surplus in the cherry market

14. C If, in a closed economy, the domestic price for a good is the same as the world price for the good, then opening the country to trade will not affect the market for the good. [40,1,1]

15. A pharmacist draws five doses of a vaccine from a vial and leaves 3 microliters unused. This situation lacks a. normativity b. equilibrium c. profit-maximization d. gains from trade e. Pareto efficiency

15. E Pareto efficiency occurs when the only way to increase one person's well-being is to reduce another person's well-being. Pareto efficiency therefore guarantees that no resources are wasted. [8,1,1]

16. Which of the following statements would a positive economic NOT make? a. The demand for tomatoes is inelastic. b. An increase in the interest rate will increase the level of savings. c. The government should reduce barriers to trade. d. Inflation is costly. e. If the firm enters the market, it will reap positive economic profits.

16. C Positive economists make "if, then" statements and do not incorporate value judgments. Normative economists use economic analysis and value judgments in order to make recommendations. [8,1,1]

17. In any one day, Pi can make 3 pies and 10 pizzas. Pi spends a day making 2 pies and 10 pizzas, making his actions a. profit-maximizing b. maximizing producer surplus c. impossible d. maximizing total surplus e. not Pareto efficient

17. E If Ned can produce 3 pies and 10 pizzas in one day and, after one day, he has only produced 2 pies and 10 pizzas, then his production is not Pareto efficient since he could have produced 1 more pie. [8,1,1]

18. The negative slope of the production possibility curve is evidence of a. taxes b. the law of demand c. rent seeking d. the law of supply e. opportunity cost

18. E The existence of opportunity cost creates a downward sloping production possibility curve. You need to give up creating one good in order to create another good. [36,1,4]

19. As the time horizon increases to infinity, price elasticity of supply a. increases to infinity b. stays the same c. decreases to zero d. decreases to negative infinity e. increases to 1

19. A As the time horizon increases, suppliers have more time to organize and plan for entering or exiting a market. Therefore, the price elasticity of supply increases to infinity as time horizon increases. [30]

2. In which of the following situations would a tax MOST likely burden consumers more than producers? a. The market is a monopoly. b. The government ensures the tax only affects consumers. c. Producer surplus is higher than consumer surplus. d. Supply is more elastic than demand. e. Consumer surplus is higher than producer surplus.

2. D A tax burdens consumers more than producers when supply is more elastic than demand. A tax burdens producers more than consumers when demand is more elastic than supply. [34,1,2]

20. Which PRIMARY group suffers when a country becomes an exporter? a. students b. laborers c. government d. firms e. consumers

20. E When a country becomes an exporter, consumer surplus shrinks and producer surplus grows. Although social welfare increases, consumers suffer from this transition. [40,1,4]

21. Which of the following markets is closest to being perfectly competitive? a. cherries b. coal c. diamonds d. electricity e. railroads

21. A Perfectly competitive markets have a large number of buyers and sellers, none of whom can control the market price. Perfectly competitive markets also comprise a highly standardized good and no barriers to entry and exit. [11,1,1]

22. If a producer can only make one good, the production possibility frontier is a(n) a. horizontal line b. vertical line c. point d. upward sloping line e. downward sloping line

22. C If a producer can only make one good, maximizing production of this good is the only Pareto efficient option. Therefore, the production possibility frontier is a point. [36,1,1]

23. In a perfectly competitive market, the actions of individual buyers and sellers are a. obscured b. disinterested c. unmotivated d. predictable e. random

23. D In a perfectly competitive market, each buyer and seller acts in his or her self-interest and therefore their actions should be predictable - they are rational. [7,2,0]

24. Who sets the price in a formal market? a. the government b. producers c. the natural forces of equilibrium d. an auctioneer e. consumers

24. D In a formal market, the price is set by an auctioneer. In an informal market, the price is set by the natural forces of equilibrium. [10,2,1]

25. Forks and knives are complements. The price of forks increases. In the market for knives, a. the demand curve shifts outward b. the supply curve shifts inward c. the demand curve shifts inward d. the supply curve shifts outward e. neither curve shifts

25. C If the price of a complement increases, the demand curve will shift inward. If the price of a complement decreases, the demand curve will shift outward. [14,1,0]

26. Forks and chopsticks are substitutes. The price of forks increases. In the market for chopsticks, a. the demand curve shifts outward b. neither curve shifts c. the supply curve shifts inward d. the supply curve shifts outward e. the demand curve shifts inward

26. A If the price of a substitute increases, the demand curve will shift outward. [13,2,5]

27. The price of forks increases. As a result, the demand curve for forks a. does not change b. shifts inward c. shifts upward d. shifts outward e. shifts downward

27. A An increase in the price translates to an upward movement along the demand curve. The demand curve itself does not change. [13,1,4]

28. As income decreases, people tend to purchase more instant ramen. Instant ramen is a(n) a. substitute b. inferior good c. complement d. normal good e. public good

28. B As income decreases, the demand for an inferior good shifts outward, which means that people will buy more of the good at every price. As income increases, the demand for a normal good shifts outward. [13,2,4]

29. Assume Tokidoki is a normal good. Consumer income increases. What happens in the market for Tokidoki? a. Quantity demanded will increase along the demand curve. b. The supply curve will shift inward. c. Quantity demanded will decrease along the demand curve. d. The demand curve will shift outward. e. The supply curve will shift outward.

29. D When income increases, the demand for a normal good will shift outward. When income decreases, the demand for a normal good will shift inward. [13,2,3]

3. Which of the following wealth distributions, in a population of 5 people with $10 worth of goods, would NOT satisfy the Pareto efficiency? a. Two people have $2.50, and three people have $1. b. All five people have $2 each, with no remainder. c. Three people have $3, and two people have $0.50. d. One person has $6, and four people have $1. e. Four people have $1.50, and one person has $4.

3. A Pareto efficiency requires that markets clear (that is, that all units be used up). Any distribution with no leftovers will satisfy Pareto efficiency. [8, 2, 1]

30. The price of doumiao rises from $3 to $6 and quantity supplied increases from 300 to 500. The supply of doumiao is a. perfectly inelastic b. unit elastic c. inelastic d. elastic e. perfectly elastic

30. C The price elasticity of supply is the percent change in quantity supplied over the percent change in price. If the price elasticity of supply is less than 1, the supply is inelastic. [26,1,4]

31. The price of NFTs falls from $10 to $9. As a result, the quantity supplied falls from 50 to 45. What is the price elasticity of supply? a. 10/11 b. 5 c. 1 d. 11/10 e. 1/5

31. C The price elasticity of supply is the percent change in quantity supplied divided by the percent change in price. When the price elasticity of supply is 1, supply is unit elastic. [26,1,4]

32. A supply curve can have all of the following slopes EXCEPT a. 0 b. 1 c. -3 d. infinity e. 10

32. C The law of supply states that supply is upward sloping and therefore the supply curve is usually positively sloped. However, the supply curve can sometimes be horizontal or vertical. [14,1,1]

33. Which of the following situations does NOT cause an increase in quantity supplied for every price? a. a decrease in input prices b. the invention of new technology c. a decrease in equilibrium price d. an increase in the number of suppliers e. the expectation that the future equilibrium price will be lower

33. C An increase in quantity supplied at every price, which is equivalent to an outward shift in the demand curve, occurs with a decrease in input prices, an invention of new technology, an increase in the number of suppliers, or an expectation that the price of the good will be lower in the future. [15,1,4;15,2,3]

34. Wood is an input of chopsticks. The price of wood rises. In the market for chopsticks, a. the demand curve shifts outward b. quantity supplied decreases along the supply curve c. quantity demanded increases along the demand curve d. the supply curve shifts outward e. the supply curve shifts inward

34. E When the price of an input of a normal good increases, the supply curve for the good shifts inward. When the price of an input of a normal good decreases, the supply curve for the good shifts outward. [15,1,4]

35. Producing wooden chopsticks requires higher input costs than producing steel chopsticks. Which of the following scenarios results? a. The supply curve for wooden chopsticks is shifted outward compared to the supply curve for steel chopsticks. b. The quantity demanded of wooden chopsticks is higher than quantity demanded of steel chopsticks. c. The quantity supplied of wooden chopsticks is higher than quantity supplied of steel chopsticks. d. The supply curve for wooden chopsticks is more elastic than the supply curve for steel chopsticks. e. The equilibrium price of wooden chopsticks is higher than the equilibrium price of steel chopsticks.

35. E Higher input costs lead to a decrease in quantity supplied at every price. Therefore, if two goods are the same except for input prices, the supply curve of the good with higher input costs will be shifted inward compared to the supply curve of the other good. [15,1,4]

36. The product of price equilibrium and equilibrium quantity yields a. dividend revenue b. total revenue c. rental revenue d. equilibrium revenue e. marginal revenue

36. B The product of price equilibrium and equilibrium quantity (or, the price by how many unites are sold) yields total revenue. [26,1,4]

37. How is the market supply curve obtained? a. using one individual supply curve b. taking the average of all individual supply curves c. vertically adding individual supply curves d. horizontally adding individual supply curves e. taking an average of two individual supply curves

37. D The market quantity supplied is the sum of each seller's individual quantity supplied. Therefore, the market supply curve is found by horizontally adding individual supply curves. [15,1,2]

38. Ma, Ba, and Pa want to sell cutlery sets. Ma wants to sell one for at least $50, Ba for at least $35, and Pa for at least $20. The current market price for a cutlery set is $40. What is Pa's producer surplus? a. $10 b. $25 c. $5 d. $20 e. $35

38. D Producer surplus is the difference between the least for which a producer would sell the good and the market price. Graphically, producer surplus is the area beneath the market price and above the supply curve. [20,2,2]

39. Ai, Tee, and Vera want to buy 10 bottles of olive oil. They will pay at most $3, $5, and $4 per bottle. If the market price is $4.50, what is total consumer surplus? a. $5 b. $10 c. -$15 d. $0 e. -$10

39. A Consumer surplus is the difference between the most consumers will pay for a good and what they actually pay for the good. Graphically, consumer surplus is the area below the demand curve and above the market price. [20,2,0]

4. Which term refers to public opinion's effect on prices? a. morals b. commonality c. taste d. ethics e. default

4. C Taste is a measure of fashion. When public taste approves of something (skinny jeans), the price rises. When it approves of a different thing (boyfriend jeans), the price of the first falls and the other rises. [14,1,1]

40. The area above the market price and below the demand curve represents a. consumer surplus b. tax revenue c. producer surplus d. total surplus e. deadweight loss

40. A The area above the market price and below the demand curve is consumer surplus. The area below the market price and above the supply curve is producer surplus. [20,2,0]

41. Taxes produce a. higher total surplus b. more producer surplus c. more consumer surplus d. negative externalities e. deadweight loss

41. E Both taxes and monopolies reduce equilibrium quantity from the socially efficient quantity. This reduction creates deadweight loss. [33,2,4]

42. Irene, Jack, and Karen are the only buyers in the spork market. The most they will pay for a spork is $4, $8, and $10 respectively. The market price for sporks is $12. Find total consumer surplus. a. $0 b. $22 c. $2 d. $8 e. $14

42. A If a seller demands a price above the market price, he or she will not be able to sell his or her good and so will not contribute to producer surplus. [20,2,0]

43. A situation that is not Pareto efficient fails to maximize a. consumer surplus b. total surplus c. total revenue d. tax revenue e. producer surplus

43. B A situation that is not Pareto efficient wastes resources. Therefore, it fails to maximize total surplus. [20,2,3]

44. To adjust to equilibrium from a shortage, sellers raise their prices and buyers a. accept lower prices b. lower their quantity demanded at every price c. raise quantity demanded at every price d. do nothing e. accept higher prices

44. E In a shortage, the equilibrium price is too low so that quantity demanded exceeds quantity supplied. Therefore, to adjust to equilibrium, the price needs to rise. [20,1,0]

45. Which of the following changes would cause an increase in the market price of a bus ticket, assuming buses are a normal good? a. the invention of a more efficient bus engine b. an increase in commuter income c. a decrease in the price of a subway ticket d. the release of a report about the environmental impact of buses e. a decrease in gas prices

45. B The demand curve of a normal good shifts outward with an increase in consumer income. An outward shift in the demand curve leads to an increase in equilibrium price and equilibrium quantity. [13,2,3]

46. What result occurs if a buyer in a perfectly competitive market demands a price lower than the market price? a. Many sellers will lower their prices. b. They will be able to buy more than the equilibrium quantity. c. They will be able to buy but not at the equilibrium quantity. d. One seller will lower his price. e. They will not be able to buy the good.

46. E If a buyer in a perfectly competitive market demands a price lower than the market price, he will not be able to buy the good since any seller will be able to sell the good to another buyer at the market price. [20,1,5]

47. New government subsidies increase the number of mask makers. How does the market for masks react? a. The supply curve shifts inward. b. The supply curve shifts outward. c. The demand curve shifts inward. d. The demand curve shifts outward. e. Neither curve shifts.

47. B If the number of suppliers increases, quantity supplied increases at every price. As a result, the supply curve shifts outward. [15,2,3]

48. Fork suppliers expect that the price of forks will be higher in the future. How does the market for forks in the present day? a. the supply curve shifts inward b. quantity demanded increases along the demand curve c. quantity supplied decreases along the supply curve d. the demand curve shifts outward e. the supply curve shifts outward

48. A When suppliers expect the price of a good to be higher in the future, the supply curve will shift inward. When suppliers expect the price of a good to be lower in the future, the supply curve will shift outward. [15,2,2]

49. When drawing a demand curve, which of the following variables is NOT held constant? a. price b. the price of related goods c. expectations d. tastes e. income

49. A A demand curve is a graph of the quantity demanded for every price holding other variables, including income, the price of related goods, expectations, and tastes constant. [13,2,1]

5. A decrease in a good's price leads to increased demand for another good. The two goods are a. complements b. indifferent c. oligopolistic d. elastic e. substitutes

5. A Complementary goods are goods that are used together. A decrease in the price of hot dogs will lead to an increase in quantity demanded of hot dogs - but people need buns to eat with those hot dogs. So, demand for buns rises. [14,1,0]

50. Katie and Lenny sell roses while Mabel and Ned buy roses. Which of the following situations does NOT describe a market? a. Mabel and Ned agree to sell roses for $5 each. b. Katie sells roses to Mabel and Ned for $5 each. c. Katie sells a rose to Mabel for $8. d. Lenny tries to sell a rose to Mabel, but Mabel ends up buying a rose from Katie for $4. e. Lenny sells a rose to Mabel for $7 and Katie sells a rose to Ned for $7.

50. A A market is the interaction of buyers and sellers. Both buyers and sellers need to be present for a market to exist. [10,2,2]

6. Which of the following items is NOT part of the production cost of antifreeze? a. quality testing b. wages c. sales tax d. chemicals e. electricity

6. C Input prices are costs that suppliers must pay to produce and sell a product. Input prices include rent, utilities, labor, and raw materials. Taxes are imposed by the government and not considered part of costs. [15, 1, 4]

7. Which type of good experiences the LOWEST elasticity of demand? a. a good with a close substitute b. a good within a broadly defined market c. a good with high brand loyalty d. a good with a short-term price increase e. a good regarded as a necessity

7. A Goods with close substitutes have the lowest elasticity of demand. [25,2,3]

8. Higher income levels will likely result in a decrease in demand for a. fancy salads b. airplane tickets c. used cars d. violin lessons e. smartphones

8. C Higher income levels decrease demand for inferior goods, like used cars. Quantity demanded of normal goods increases. [13,2,4]

9. Which of the following factors is MOST directly correlated to marginal utility? a. quantity consumed b. quantity ordered c. quantitity discarded d. quantity desired e. quantity offered

9. A Marginal utility is the added satisfaction that a consumer gets from having one more unity of a good. The quantity consumed affects marginal utility - your tenth diamond ring gives less utility than your first. [13,1,1]