Econ 203 Chapters 1-5
Refer to the diagram. With MB1 and MC1, society's optimal amount of pollution abatement is
Q1
What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
A government tax per unit of output reduces supply.
True
A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.
True
An improvement in the technology of pollution control is likely to increase society's optimal amount of pollution abatement.
True
The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.
True
The wants of consumers are expressed in the product market with "dollar votes."
True
efer to the diagram. A price of $60 in this market will result in
a surplus of 100 units.
The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called
producer surplus.
In situations of sticky prices and negative demand shocks, we would expect firms to
build up inventories before reducing production.
The law of supply indicates that, other things equal,
producers will offer more of a product at high prices than at low prices.
When the marginal benefit of an output exceeds the marginal cost,
production of that output should be increased, in order to achieve efficiency.
Demand shocks
refer to unexpected changes in the desires of households and businesses to buy goods and services.
The equilibrium price and quantity in a market usually produce allocative efficiency because
marginal benefit and marginal cost are equal at that point.
Where there is asymmetric information between buyers and sellers,
markets can produce inefficient outcomes.
Refer to the diagram. An increase in quantity supplied is depicted by a
move from point y to point x.
Refer to the diagram. This economy will experience unemployment if it produces at point
D
Which of the following is the best synonym for "marginal" in economics?
Additional
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then
F represents a price that would result in a shortage of AC.
A price ceiling imposed by the government is intended to benefit the sellers of the product.
False
A surplus indicates that the quantity demanded is greater than the quantity supplied at that price.
False
An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.
False
An increase in quantity supplied might be caused by an increase in resource costs.
False
Negative demand shocks have a more significant impact on output and employment when prices are flexible.
False
Two goods are considered to be related goods by many buyers: if the price of one increases, buyers buy more of the other. This indicates that the two goods are complements.
False
Which of the following best explains why prices tend to be inflexible even when demand changes?
Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
Nominal GDP would rise, but real GDP would be unchanged.
An improvement in production technology will
Shift the supply curve to the right.
Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas
a + b.
Which of the following will not cause the demand for product K to change?
a change in the price of product K
Unemployment describes the condition where
a person cannot get a job but is willing to work and is actively seeking work.
TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid
adverse selection.
The budget line shows
all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
an increase in supply
Increased present saving
comes at the expense of reduced current consumption.
Market failure is said to occur whenever
competitive markets do not allocate resources in the most economically desirable way.
Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?
diminishing marginal utility
Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are)
external costs in the production of this product.
Answer the question based on the given supply and demand data for wheat. If the price in this market was $4,
farmers would not be able to sell all their wheat.
Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza?
graph D
The production possibilities curve illustrates the basic principle that
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n)
increase in the wage rates paid to laborers employed in the production of X.
By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars
increasing and the quantity decreasing.
A market
is an institution that brings together buyers and sellers.
The figure depicts a situation where
prices are sticky, but output is flexible.
Which of the following is most closely related to recessions?
negative real growth in output
Price wars among firms
occur when one firm lowers its price and rival firms react by lowering their prices.
The Latin term "ceteris paribus" means
other things equal.
The term "recession" describes a situation where
output and living standards decline.
Scarcity
persists because economic wants exceed available resources.
For economists, the word "utility" means
pleasure or satisfaction.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is
price
The law of demand states that, other things equal,
price and quantity demanded are directly related.
The demand curve shows the relationship between
price and quantity demanded.
The supply curve shows the relationship between
price and quantity supplied.
If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium
price must rise, but equilibrium quantity may rise, fall, or remain unchanged.
If a good that generates negative externalities were priced to take these negative externalities into account, then its
price would increase and its quantity would decrease.
The figure depicts a situation where
prices are flexible, but output is constant.
In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of
scarcity and opportunity costs.
Refer to the diagram. A decrease in demand is depicted by a
shift from D2 to D1.
Refer to the diagram. An improvement in technology will
shift the production possibilities curve from PP1 to PP2.
The two topics of primary concern in macroeconomics are
short-run fluctuations in output and employment and long-run economic growth.
The business cycle depicts
short-run fluctuations in output and employment.
Economics may best be defined as the
social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
Opportunity costs exist because
the decision to engage in one activity means forgoing some other activity.
Other things equal, which of the following might shift the demand curve for gasoline to the left?
the development of a low-cost electric automobile
A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,
the division of output is decided by central planning rather than by individuals operating freely through markets.
Macroeconomics is mostly focused on
the economy as a whole.
Graphically, the market demand curve is
the horizontal sum of individual demand curves.
In moving along a demand curve, which of the following is not held constant?
the price of the product itself.
If there is a shortage of product X, and the price is free to change,
the price of the product will rise.
At the point where the demand and supply curves for a product intersect,
the quantity that consumers want to purchase and the amount producers choose to sell are the same.
Productive efficiency refers to
the use of the least-cost method of production.
At the equilibrium price,
there are no pressures on price to either rise or fall.
In a competitive market economy, firms select the least-cost production technique because
to do so will maximize the firms' profits.
Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle
under the demand curve and above the actual price.
In a free-market economy, a product which entails a positive externality will be
underproduced.
Real GDP measures the
value of final goods and services produced within the borders of a country, adjusted for price changes.
Increasing marginal cost of production explains
why the supply curve is upsloping.