ECON 1030 Exam 1 Recharge

Suppose the government imposes a tax on suppliers of plastic drink cups equal to $1 per 100 cups. Before the tax 10,000 cups were sold. After the tax, 8,000 cups are sold. The tax revenue is equal to

$80

Whiich statements are true?

- The elasticity calculation uses percentage changes in price and quantity - Slope uses changes in price and quantity. - A relationship exists between slope and elasticity but they are not the same thing

When a supply curve shifts to the right

- its called an increase in supply - more of a good, service, or resource is produced at all prices

Identify the features of competitive markets

- many buyers and sellers - no externalities - free entry and exit of firms

Which of the following correctly states the three main reasons the demand curve is downward sloping?

- substitutes - purchasing power - marginal benefit

Which of the following are reasons the demand curve is downward sloping? (reasons for the inverse relationship between price and quantity demanded)

- substitution effect - income effect - diminishing marginal utitlity

Suppose that when the price of gasoline is $4 per gallon, the total amount of gasoline purchased in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline purchased is 12 million barrels per day. Based on these numbers and using the midpoint formula, the price elasticity of demand for gasoline is

-1.40

Suppose that when the price of gasoline is $3 per gallon, the total amount of gasoline purchased in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $2.25 per gallon, the total amount of gasoline purchased is 12 million barrels per day. Based on these numbers and using the midpoint formula, the percentage change in price is

-28.6%

You paid $25 for a concert ticket and received a consumer surplus of $10. You were willing to pay

25+10= $35

Suppose that when the price of gasoline is $3.50 per gallon, the total amount of gasoline purchased in the United States is 6 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline purchased is 8 million barrels per day. Based on these numbers and using the midpoint formula, the percentage change in the quantity demanded is

28.6%

Which of the following would shift the supply curve for soft drinks to the left?

A 2 cent per ounce tax on all soft drinks

When a tax is imposed on buyers, what happens in the market?

The demand curve shifts to the left

The price of hotdogs, a complement to hotdog buns, decreases. How will this affect the market for hotdog buns?

The demand for hotdog buns will increase at every price

Producers expect the price of lumber to increase next month. How will producers respond today?

The supply of lumber will decrease at every price (not quantity supplied)

_____________ economics is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being

Welfare

A firm that provides financial services - such as accepting deposits and providing loans to its customers is called

a financial institution

The market adjusts to a new equilibrium price and quantity when

a non-price determinant of supply changes

The benefit enjoyed by a third party that is not directly involved in the production or consumption of a good or service is called

a positive externality

When a nonprice determinant of supply changes what will be the effect on the market?

a shift in the curve at all possible prices

An increase in supply is

a shift to the right

A production possibilities frontier that illustrates a 1-for-1 trade off between goods is drawn as

a straight, downward-sloping line

A market is

a system where buyers and sellers interact to trade goods, services, or resources

Graphically producer surplus is the area __________ the supply curve and _____________ the equilibrium post from zero to the quantity traded.

above, under

Because the world is characterized by scarcity, people must choose between different uses for the resources at their disposal. In economics, we refer to this as:

allocating resources

When there is _______________ and ___________________ efficiency, the market produces the right goods in the correct amounts using the fewest resources possible

allocative and productive

When the marginal benefit of the last unit equals the marginal cost of the last unit, production is ___________ efficient

allocatively

In terms of the production possibilities curve allocative efficiency means that at any point in time

an ideal combination of production is based on consumer preferences

When a tax is imposed on a market, it can affect:

both demand and supply

We can determine how price or quantity will change, but not both, when

both demand and supply change

Whether a good or a service is a luxury or a necessity is determined by the

buyer

When both demand and supply change, the

change in either the equilibrium price or quantity will be indeterminate

A price floor will

change the incentives that both buyers and sellers face

A producer has a(n) ______ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.

comparative

The simple model of production assumes that the opportunity cost of production is

constant

When you see a production possibilities frontier (PPF) drawn as a straight line, the opportunity cost of one good or service (in terms of units of the other good or service that must be given up) is assumed to be

constant

__________ ___________ can be thought of as the wealth that trade creates for consumers in a market.

consumer surplus

If we want to evaluate the effect of a change in price of one good on the quantity demanded of a DIFFERENT good we use

cross-price elasticity of demand

The percentage change in the quantity demanded of one good divided by the percentage change in the price of ANOTHER good is the

cross-price elasticity of demand

When you plot the data from the demand schedule on a graph, the result is called the demand

curve

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the ____________ loss

deadweight

A tax on demanders shifts the

demand curve to the left

A tabular representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, describes the

demand schedule

Prices of related goods, complements and substitutes, are

determinants of demand

The wealth - or additional well-being - created by trade

does not have to be monetary

Producer surplus is measured in

dollars or money

The quality of a(n) _______ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.

economic

__________ is the study of how individuals and societies allocate scarce resources among many competing uses and how this decision-making affects the economy at large.

economics

When resources are allocated in such a way that it is possible to increase the production of one good ONLY by decreasing the production of another, then the allocation of resources is said to be

efficient

Combinations of output along the production possibilities frontier correspond to

efficient use of resources

________________ is a measure of how responsive one variable is to a change in another variable

elasticity

______ ability involves assuming risk and organizing resources into a productive process.

entrepreneurial

Without ____________ taking risks and putting their money on the line to establish companies that create new products or production processes, we wouldn't have many of the goods and services we now have at our disposal.

entrepreneurs

In general, the optimal level of pollution to either prevent or to clean up occurs where the marginal benefit of preventing pollution ________ the marginal cost of preventing pollution

equals

An 18.4 cent tax on every gallon of gasoline sold is an example of a(n) _________ tax

excise

_________ occur when property rights are not clearly defined

externalities

A system where the strong enforce the rules according to their whim - also known as "might makes right" is called the rule of

force

The horizontal summation of individual demand curves

gives the market demand curve

Good vs service

good is tangible, service is intangible

The non-price determinants or other factors that affect demand are

held constant for any given demand curve

The circular flow model shows how

households and firms interact in two key markets (resource and product)

The role of government in market economies include all the following except

identifying new markets

The ____________ period is the time period in which producers cannot increase their use of economic resources to increase quantity supplied

immediate

Consumer surplus is measured

in terms of price

_________ elasticity of demand is a measure of how responsive demand is to a change in consumer income.

income

As the amount of an activity increases, its marginal cost

increases

On the supply side of the market, when the price of a good increases, the quantity supplied of the good

increases

A tax

increases the cost of goods sold and shifts the supply curve to the left / up

On a production possibilities frontier (PPF), if you are able to increase the production of both goods at the same time, then initially resources were allocated

inefficiently

When a minimum wage results in unemployment, people may turn to ____________ markets to provide their labor

informal

A system where a society enforces property rights - contracts - and other rules according to an established and uniform set of laws and judicial system instead of arbitrary decisions is called the rule of

law

The ________ run is the time period in which all inputs of production can be changed.

long

The price elasticity of demand is often turned into a positive number to

make the number easier to work with when determining whether demand is elastic, inelastic, or unit-elastic

A market should produce until

marginal benefit = marginal cost

An economy should continue producing a good or a service so long as

marginal benefit exceeds marginal cost

When you decide - after studying for three hours - that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in

marginal decision making

When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in

marginal decision making

Any place where or mechanism by which buyers and sellers interact to trade goods, services, or resources is a

market

The overall or total demand for a good, service, or resource is called ________ demand

market

When the market does not produce an output level that maximizes total surplus it is called a

market failure

An increase in quantity supplied is

movement upward on a given curve

A(n) ________________ externality is the uncompensated cost of an activity that is imposed on a third party

negative

The price elasticity of demand is a ______________ number because of the law of demand

negative

When a ______________ externality exists, the socially optimal level of output will be less than that resulting from a private market

negative

Cross-price elasticity of demand uses

negative and positive values to determine if goods are substitutes or complements

A good for which there is a direct relationship between the demand for the good and income is a(n) ______ good

normal

Combinations outside of the production possibilities frontier are

not currently possible to produce

The price elasticity of demand is a negative number because

of the law of demand

The value of the next-best forgone alternative is the

opportunity cost

Firms will be willing and able to produce more output ONLY when prices rise because the

opportunity cost of production is rising

__________ elasticity of supply is a measure of how responsive quantity supplied is to a change in price.

price

Shortages cannot push the market to an equilibrium in the presence of

price controls

Because a direct relationship exists between price and quantity supplied

price elasticity of supply is positive

A shortage persists when

price is not allowed to adjust upward

The primary determinant of the quantity demanded by consumers is the

price of a good or service

A demand curve is graphed by plotting

price on the vertical axis and quantity demanded on the horizontal axis.

The _______ of a good or service is the primary determinant of the quantity demanded by consumers

price or value

Social demand is the demand for a good or service that reflects both the ____________ and ____________ benefits of its consumption

private and public internal and external private and social

The demand for a good or service that considers only the private benefits of its consumption is called

private demand

If an economy is getting as much output as possible from its resources it must be

producing them at the lowest possible cost

In the circular flow model, the two markets are the resource market and the

product market

Producing output at the lowest possible total cost per unit of production is

productive efficiency

___________ rights involve the exclusive right to determine how a resource is used ____________ rights establish who owns what (like land, labor, and capital) and are essential for well-functioning markets

property

Property owned by the government is called __________ property

public

Private markets fail to provide the optimal amount of ____________ because they are non rival and non excludable

public goods

In equilibrium

quantity supplied equals the quantity demanded

The law of supply states as the price of a good decreases the

quantity supplied will decrease

Self-interest, marginal decision making, and optimization form the basis for

rational decision making

Drinkable water is ______ water in general.

relatively more scarce than

Any item (gift of nature, result of production, result of human effort) used to produce goods and services is a

resource

Although points on the production possibilities frontier represent the different combinations of output, ultimately what they show is how we allocate our scarce ________ to the production of two different goods or services.

resources

According to the Coase Theorem if a property right is well defined and transaction costs are low

resources will gravitate to their highest-valued use

When producers expect lower future prices, current supply shifts to the

right

How to calculate slope

rise/run, y2-y1/x2-x1, change in price/change in quantity demanded

When the consumption of a good or service by one person reduces the quantity available for consumption by others, the goods and services with this characteristic are _________ goods

rival

A private good is any good or service that is _________ and ____________

rival and excludable

A system where the rules are enforced by the good will of the enforcer - such as a monarch or other ruling group is called

rule of men

Due to the ______ of natural resources, we cannot have all the housing and all the forests we may want.

scarcity

A common economic situation where an economy's resources are insufficient to meet the existing wants and must be used judiciously is referred to as

scarcity (NOT poverty)

The idea that people choose to do the things that interest them is

self-interest

The _______ run is the time period in which at least one input of production is fixed but other inputs can be changed.

short

When the government sets the price below market equilibrium, there will be a(n) ________ in the market. A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price is called a

shortage or disequilibrium

Economic surplus is also known as

social welfare or total surplus

The demand curve shifts when

something other than the price of a good changes

Because of differences in opportunity costs, individuals and businesses

specialize in the production of the good for which they wield a COMPARATIVE ADVANTAGE

A payment made by the government that does not necessarily require an exchange of economic activity in return is called a

subsidy

A(n) _______ to producers lowers the cost of producing

subsidy

When there are few for a good or service, demand tends to be relatively more inelastic

substitutes

When calculating producer surplus for an individual firm

subtract the firm's willingness to accept from the market price

When a shortage exists in a competitive market, the price provides incentives for

suppliers to increase the quantity of a good or service supplied to the market

A change in taxes and subsidies on producers alters market

supply

A tax on suppliers shifts the

supply curve to the left

The difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the consumer

surplus

To pay for needed services, governments often ________ economic activity.

tax

By changing the prices that buyers and sellers face in the market

taxes change market outcomes.

When considering how changes in tastes and preferences or demographics affect demand, we tend to evaluate

the ENTIRE market

Marginal benefit is

the additional benefit associated with one more unit of an activity (NOT opportunity benefit)

The price of tents, a complement to sleeping bags, increases. How will this affect the market for sleeping bags?

the demand curve will shift to the left

When people consume a nonexcludable good without paying for it it is called

the free-rider problem

A tax is a payment made to

the government that is the result of economic activity

Other things held constant, the demand curve will shift when

the nonprice determinants of demand change

Terms of trade refers to

the price of one good or service IN TERMS OF ANOTHER

Who has comparative advantage?

the producer with the lowest relative opportunity cost

Price elasticity of demand is a measure of how responsive

the quantity demanded is to a change in price

When the price of a good, service, or resource increases

the quantity supplied increases

When a nonprice determinant of supply changes

the supply curve shifts to the left or right

Social supply is

the supply of a good or service that reflects both the private and external costs of its production

Private supply is

the supply of a good or service that reflects only the private costs of its production.

The revenue collected from a tax equals

the tax times the quantity traded

When people do not own the resources they use

they tend to under invest in them or overuse them

Without predictable enforcement and the rule of law

uncertainty and risk can limit market interactions and economic development

Specialization refers to

using available resources to produce a single good or service rather than multiple goods and services