Econ 111 Test 1

A decrease in demand refers to:

a leftward shift of the demand curve

The equilibrium price is

stable because at this price the quantity demanded equals the quantity supplied.

Which fable from Aesop best illustrates the moral idea that incentive spurs effort?

A Hound Chased a Rabbit

What is the difference between a shift in the demand curve and a movement along the demand curve?

A shift implies a change in the whole demand curve; a movement does not.

Which demonstrates a scenario with no opportunity cost?

All of these scenarios have an opportunity cost

Which of the following could explain the figure?

Consumer income increases in the market for a normal good.

Which scenario would least likely change an individual's behavior?

In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.

In a free market setting where quantity supplied is 40 units and quantity demanded is 50 units, price will

rise

In economics, what is meant by "optimal decisions are made at the margin?

The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.

What does the law of supply state?

There is a positive relationship between price and quantity supplied

If the price of basketballs goes up from $7.99 to $14.99, what can be expected from suppliers of basketballs as a result?

There will be an increase in quantity supplied

An increase in supply refers to:

a rightward shift of the supply curve

Producer surplus is shown graphically as the area

above the supply curve and below the market price

The quantity supplied is the

amount that sellers are willing and able to sell at a particular price.

When two people voluntarily trade with each other:

both of them will be better off

Vernon Smith tested the supply and demand model in the laboratory and found that

buyers and sellers quickly converged on the predicted equilibrium

Economists believe people make decisions by:

comparing marginal costs with marginal benefits.

The quantity demanded of a good or service is the amount that:

consumers are willing and able to buy at a given price

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price

When markets don't align self-interest with social interest:

governments may improve the situation by changing incentives.

The demand curve is a

graphical representation of the relationship between price and quantity demanded

The most important tools in economics, according to the textbook, are supply, demand, and the

idea of equilibrium

Several states offer rebates on the purchase of electric vehicles. This practice highlights the idea of:

incentives

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of:

marginal thinking

When the price of a good decreases

quantity demanded increases

Total producer surplus equals:

the area above the supply curve and beneath the market price

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. The end result of Daniel's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of

the invisible hand

Producer surplus is the difference between

the market price and the minimum price a seller is willing to accept

Gains from trade are maximized when

the market price is equal to the equilibrium price

The supply curve illustrates:

the relationship between the quantity supplied and the price of a good.

Laboratory experiments by Vernon Smith support

the supply and demand model's usefulness in predicting changes in a free market

The opportunity cost of a choice is:

the value of the next best opportunity foregone.

The great economic problem is how to arrange our scarce resources:

to satisfy as many of our wants as possible.

What is the great economic problem?

to satisfy as many wants as possible with our limited resources

Consumer surplus is shown graphically as the area

under the demand curve and above the market price