Econ 202 Final Exam

An important factor in the decline of the U.S. textile industry over the past 100 or so years is

foreign competitors that can produce quality textile goods at low cost

By Definition, Exports are...

goods produced domestically and sold abroad

A good will have a more elastic demand, the

greater the availability of close substitutes

If the Korean steel industry subsidizes the steel that it sells to the United States, the

harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that

the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed

The word "economy" comes from the Greek word oikonomos, which means

"one who manages a household"

Approximately what percentage of the world's economies experience scarcity?

100%

Consumer surplus in a market can be represented by the

Area below the demand curve, and above the price

A likely example of complementary goods for most people would be

Canoes & Paddles

A legal maximum on the price at which a good can be sold is called a price

Ceiling

Two types of private solutions to the problem of externalities are

Charities and the Golden Rule

A model that shows how dollars flow through markets among households and firms is called the

Circular-flow diagram

A cheeseburger is a

private good because it is excludable and rival in consumption

According to the Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome

A good that is rival in consumption and not excludable is called a

Common resource

Economists at the Department of Justice help...

Enforce the nations antitrust laws

The overriding reason why households and societies face many decisions is that

Resources are scarce

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

reduce the number of acres they plant to decrease their output

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all

rely on one another for the goods and services we consume

One should be especially wary of the national-security argument for restricting trade when that argument is made by

representatives of industry

A positive economic statement such as "Pollution taxes decrease the quantity of pollution generated by firms"

Would require data but not values to be evaluated

A normative economic statement such as "The minimum wage should be abolished"

Would require values and data to be evaluated

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

Zero, the supply curve is vertical

Almost all economists agree that rent control

adversely affects the availability and quality of housing

A good will have a more inelastic demand, the

broader the definition of the market

A binding minimum wage tends to

cause a labor surplus. cause unemployment. have the greatest impact in the market for teenage labor

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left).

For a good that is a necessity, demand

tends to be inelastic

The production possibilities frontier illustrates

the combinations of output that an economy can produce

A positive externality will cause a market to produce

less than is socially desirable

Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at

the equilibrium price but not above or below the equilibrium price

A consumer's willingness to pay directly measures

how much a buyer values a good

Alexis is a lawyer. She bills her clients $100 an hour for her services. She can also mow her lawn in 30 minutes. She can hire someone to mow her lawn who takes an hour. Of the following prices, which is the highest Alexis would pay someone to mow her lawn?

$49

In considering how to allocate its scarce resources among its various members, a household considers

-Each members abilities -Each members efforts -Each members desires

A circular-flow diagram is a model that

-helps to explain how participants in the economy interact with one another -helps to explain how the economy is organized

A competitive market is one in which there

Are so many buyers and so many sellers that each has a negligible impact on the price of the product

John Maynard Keynes referred to economics as an easy subject,

At which very few excel

When a buyer's willingness to pay for a good is equal to the price of the good, the

Buyer is indifferent between buying the good and not buying it

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to

increase poverty in poor countries and benefit U.S. firms which compete with these imports

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

Downward by exactly $2

If the labor supply curve is nearly vertical, a tax on labor

Has little impact on the amount of work that workers are willing to do

A minimum wage that is set below a market's equilibrium wage will

Have no impact on employment

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should

Import Copper

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will

Increase consumer surplus

If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will

Increase producer surplus

A deadweight loss is a consequence of a tax on a good because the tax

Inducers the buyers to consume less, and sellers to produce less

A tax burden falls more heavily on the side of the market that

Is more inelastic

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

Lower both prices and total revenues

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Making it illegal to "disturb the peace"

Other things equal, the deadweight loss of a tax

increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax

Whats the relationship between micro and macroeconomics?

Microeconomics and macroeconomics are distinct from one another, yet they are closely related.

A cost imposed on someone who is neither the consumer nor the producer is called a

Negative externality

Reaching an efficient bargain is difficult when the

Number of interested parties is large

What is comparative advantage most closely related to?

Opportunity Cost

For which pairs of goods is the cross-price elasticity most likely to be negative?

Peanut Butter & Jelly

A demand schedule is a table that shows the relationship between

Price and quantity demanded

Assume a market is perfectly competitive. When a new producer enters the market, the

Price in the market does not change

Buyers and sellers who have no influence on market price are referred to as

Price takers

Economists use some familiar terms in specialized ways to...

Provide a new and useful way of thinking about the world

Almost all economists agree that tariffs and import quotas...

Reduces general economic welfare

If one person's use of a good diminishes another person's enjoyment of it, the good is

Rival in consumption

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee

Resources are...

Scarce for households and scarce for economies

Economics deals primarily with the concept of

Scarcity

What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have?

Scarcity

As we move downward and to the right along a linear, downward-sloping demand curve,

Slope remains constant but elasticity changes

A improvement in production technology will shift the

Supply curve to the right

A minimum wage that is set above a market's equilibrium wage will result in an excess

Supply of labor, that is, unemployment

Externalities tend to cause markets to be

inefficient

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

The dentist gets a new drill; it doesnt matter who pays for it

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

The market for wallpaper is in the equilibrium

Governments can grant private property rights over resources that were previously viewed as public, such as fish or elephants. Why would governments want to do so?

To prevent overuse

The study of how the allocation of resources affects economic well-being is called

Welfare economics

A city street is

a common resource when it is congested, but it is a public good when it is not congested.

Technology spillover occurs when

a firm's research yields technical knowledge that is used by society as a whole.

A tariff is a

a tax on an imported good

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency

A person can benefit from specialization and trade by obtaining a good at a price that is

lower than his or her opportunity cost of the good

If a surplus exists in a market, then we know that the actual price is

above the equilibrium price, and quantity supplied is greater than quantity demanded.

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

A perfectly elastic demand implies that

any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

Producer surplus is the area

below the price and above the supply curve

A tax affects

buyers, sellers, and the government

Taxes on labor encourage which of the following?

mothers to stay at home rather than work in the labor force

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

confirmation of the virtues of free trade

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume

Inefficiency exists in an economy when a good is

not being produced by the lowest-cost producers.

The higher a country's tax rates, the more likely that country will be

on the negatively sloped part of the Laffer curve.

A leftward shift of a demand curve is called a(n)

decrease in demand

A decrease in the price of a good will

decrease in quantity supplied

A tax on buyers will shift the

demand curve downward by the amount of the tax

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to

overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced

If the current allocation of resources in the market for hammers is inefficient, then it must be the case that

the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources

When two countries trade with one another, it is most likely because

the two countries wish to take advantage of the principle of comparative advantage

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the

demand for the product is more elastic than the supply of the product

A tax imposed on the buyers of a good will lower the

effective price received by sellers and lower the equilibrium quantity