ECON 200, Microeconomics, Practice Quizzes

A person has a comparative advantage in activity X when that person's:

opportunity cost is lower for him than for other trading partners.

Trade makes people better off when

people have different preferences

Division of knowledge refers to

people learning different tasks in which they specialize.

Adam Smith's "invisible hand" refers to:

people's pursuit of their own self-interest.

The supply curve for a Picasso painting is:

perfectly inelastic

The government enacts a price control, causing a shortage of 15 units of the good. Therefore, the _____ is set at

price ceiling; $10

When airlines were regulated, many offered wider seats and fancy meals. This is an example of:

quality waste

Price ceilings create five important effects:

shortages, reductions in product quality, wasteful lines, a loss of gains from trade, and a misallocation of resources.

The supply curve illustrates:

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

The price elasticity of demand is:

the responsiveness of quantity demanded to changes in the price of the product

The presence of price floors in a market is usually an indication that:

the sellers of the good or service outnumber the buyers

Over time, housing shortages caused by rent control _____ because the supply of housing is _____ elastic in the long run.

increase; more

The supply curve for manufactured goods is usually more elastic than for raw materials because production of manufactured goods can often be:

increased at the same cost per unit by building more factories.

Which statement is correct regarding the Federal Reserve?

Most economists believe that the Federal Reserve does more good than harm.

If the price of cocoa rises by 20%, the quantity supplied of cocoa rises by 4%. What is the elasticity of supply?

0.2

If a 4% increase in the price of pepper results in a 1% decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic?

0.25; inelastic

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

1.22

Use the PPFs shown for the United States and India. With specialization and trade, the United States would produce _____, and India would produce _____.

50 pounds of rice and 0 shirts; 0 pounds of rice and 35 shirts

Inflation is

A general and progressive increase in prices

inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product

elastic demand

A situation in which consumer demand is sensitive to changes in price

Each of 100 people receives a random item from a grocery store and assigns it a value between 1 (low) and 10 (high). They trade those items among themselves for items they prefer rather than those they randomly received and then assign a second value (again, 1 to 10) to the item that they end up with after the trading concludes. How would the sum of those values before trading compare with the sum after trading?

After trading, value would be higher because preferences are diverse.

Many clothing stores often have clearance sales at the end of each season. Which of the following provides the best explanation for this?

At the end of the season, the quantity demanded on some items is less than the quantity supplied.

Jose sells his economics textbook from last semester, which he could sell back to the bookstore for $40, to Adolfo for $150. Adolfo had planned to pay $240 for the textbook at the bookstore. Which of the following statements is TRUE?

Both Jose and Adolfo are made better off by the trade.

Brazil can produce 1 unit of sugarcane with 1 unit of labor and 1 iPod with 8 units of labor, and China can produce 1 unit of sugarcane with 2 units of labor and 1 iPod with 4 units of labor. Which of the following is TRUE?

Brazil has both a comparative advantage and an absolute advantage in sugarcane production.

As you learned in the chapter, the elasticities of demand and supply are crucial in determining how the burden of a tax (or the benefit of a subsidy) is divided between buyers and sellers. Under what conditions for supply or demand would a seller actually be able to avoid bearing any of the burden of a tax? Under what conditions would a subsidy benefit only the sellers of a good?

For the seller to completely escape the tax, the elasticity of supply would have to be perfectly elastic. This means that the supply curve would have to be horizontal. Alternately, sellers could avoid the tax if buyers had no ability to escape—that is, if demand was perfectly inelastic , or vertical.

why economists want to understand the determinants of economic wealth?

Higher levels of wealth tend to generate better health and human rights outcomes across countries.

Mark values his drum set at $800, and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

Mark must value Ella's guitar for at least $800, and Ella must value Mark's drum set for at least $1,000.

Which statement(s) is(are) TRUE? Price floors set above the equilibrium price cause: I. shortages. II. surpluses. III. deadweight losses.

II and III only

Which statement illustrates the concept of external cost?

Raymond cannot open his windows at times because he lives downwind from a mushroom farm.

1 Automobile1 Light SUVSouth Korean labor units1518U.S. labor units2420 According to the table on automobile and light SUV production, which of the following is TRUE about U.S. and South Korean comparative advantages?

South Korea has a comparative advantage in producing automobiles, and the United States has a comparative advantage in producing light SUVs.

Which of the following best explains the term "specialization" with respect to trade?

Specialization occurs when people concentrate their productive resources on the goods and services they can produce most efficiently.

How do both taxes and subsidies create deadweight loss?

Taxes create deadweight loss by decreasing quantity, while subsidies create deadweight loss by increasing quantity.

Suppose you are bidding on a used car and someone else bids above the highest amount that you are willing to pay. What can you say for sure about that person and you?

That person's monetary value of the car is higher than yours.

At a price ceiling of $2:

bribes of $1 per unit may be common.

New production technology in the manufacture of 4K ultra-high-definition television screens has reduced the cost of production. What effect will this have in the market for televisions?

The supply curve will shift to the right.

Why is the demand curve for oil rather inelastic?

There are few widely available good substitutes for oil.

Which statement explains why the Federal Reserve has a tough job?

There are lags in the effects of monetary policy, and economic conditions continuously change.

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?

They will fall.

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

They will rise.

Extensive flooding in the Midwest decreases the world supply of corn. If corn is inelastically demanded, what will happen to total revenues from corn production?

They will rise.

Matilda sells her iPhone, which she considers worthless, to Gabriel for $200. Which of the following statements is TRUE?

This trade created value because Gabriel is buying the iPhone for more than Matilda thinks it is worth.

An external cost is:

a cost paid by people other than the consumer or the producer trading in the market

What are the institutions that help foster the appropriate incentives for economic growth?

a dependable legal system, property rights, and competitive and open markets

inferior good

a good that consumers demand less of when their incomes increase

A decrease in demand refers to

a leftward shift of the demand curve

Wealthy countries tend to have _____ physical capital per worker and _____ human capital per worker.

a lot of; a lot of

An increase in supply refers to

a rightward shift of the supply curve

Which of the following choices contains only factors that cause the supply curve to shift to the right?

a rise in technology, a fall in the costs of production, a fall in taxes on output

Suppose Sam likes to do five different things, each of which requires exactly one orange. The accompanying table shows Sam's ranking of the highest-valued orange-related activity (1) to her lowest-valued activity (5). ActivityRank of PreferenceGive a friend the orange.1Throw the orange at a person she doesn't like.5Eat the orange.2Squeeze the orange to drink the juice.3Use the orange as decorative fruit.4 a. Suppose the price per orange is high enough that Sam buys only four. What activity does Sam not do? b. What does the price at which Sam would just purchase the fifth orange tell us about the value she receives from the fifth-ranked activity?

a. Throw the orange at a person she doesn't like. b. The price she pays is the value of the fifth-ranked activity.

A "quality waste" refers to:

an increase in quality under a price floor

Rent controls are:

an inefficient way to help the poor in raising their standard of living.

If there are 100 tickets to a concert and 200 fans who would like to go to the concert, each placing a slightly different value on the tickets, is it more efficient to hold an auction for the tickets or to hold a random drawing for the tickets?

auction

Consumers are likely to be more sensitive to price changes for automobiles than for canned soft drinks because:

automobiles have more substitutes.

When two people voluntarily trade with each other:

both of them will be better off

An economy with permanent, universal price controls is in essence a:

command economy

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

Economic growth in the modern era is primarily due to the

creation of new knowledge.

Increases in farm productivity lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:

demand for many agricultural products is inelastic.

Only a very small portion of people who use microwaves know how they work. This is an example of:

division of knowledge

In an "open access" city, where building new housing is less restricted, the supply of housing is:

elastic

Which is NOT a cost of binding price controls?

equity costs

When supply falls, what happens to quantity demanded in equilibrium?

falls

The _____ has the power to regulate the money supply in the United States.

federal reserve

Two major policies used by the government to affect economic conditions are

fiscal and monetary policy.

When the minimum price that can be legally charged is above the market price, we say there is a price:

floor

Booms and busts refer to the

fluctuations in economic activity over time.

If an external cost is present in a market, economic efficiency may be enhanced by:

government intervention

subsidy

government payment to encourage or protect a certain economic activity

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

governments may improve the situation by changing incentives.

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

The main reason specialization can raise productivity is that

knowledge in human brains is limited

Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes:

landlords to neglect their buildings, allowing them to deteriorate over time.

A price ceiling is a(n):

legally established maximum price that can be charged for a good

Suppose the town of Drippling Springs enacts a wage floor of $20. What does area CF represent? (triangle left of equilibrium)

lost gains from trade

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

If the supply of a product is inelastic, a large price increase will:

only bring about a small increase in quantity supplied.

Economists often say that prices are a "rationing mechanism." If the supply of a good falls, how do prices "ration" these now-scarce goods in a competitive market? Prices "ration" these now-scarce goods because

only people with a higher willingness to pay will get the good.

You manage a department store in Florida, and one winter day you read in the newspaper that orange juice futures have fallen dramatically in price. Should your store stock up on more sweaters than usual, or should your store stock up on more Bermuda shorts?

shorts; fall is a good sign

Gun buyback programs will be less effective if the:

supply of guns is more elastic.

Comparative advantage refers to

the ability to produce a good with a lower opportunity cost than another producer.

Which of the following defines the opportunity cost of doing this homework?

the activity one could reasonably be doing in place of doing homework

The quantity supplied

the amount of a good that sellers are willing and able to sell

Total producer surplus equals:

the area above the supply curve and beneath the market price

The social cost is:

the cost to everyone

Absolute advantage derives from which of the following?

the lowest cost of production

What is the opportunity cost of the economics profession?

the next best thing that economists could be doing with their time

The opportunity cost of a choice is:

the value of the next best opportunity foregone.

What does the law of supply state?

there is a positive relationship between price and quantity supplied

In this chapter, we noted that successful economies are more likely to have many failing firms. If a nation's government instead made it impossible for inefficient firms to fail by giving them loans, cash grants, and other bailouts to stay in business, why is that nation likely to be poor? That nation is likely to be poor because if inefficient firms are kept from failing,

there would be less production, consumption, and output for any given level of investment.

If the social cost of an activity equals the private cost, what kind of externality exists?

theres no externality

Price controls are usually imposed in response to an:

unexpected increase in prices.

If the supply of a good is very elastic, then any increase in demand for the good will have a:

very small impact on the price of the good.