econ 251 exam 1
A supply curve that illustrates the law of supply _______.
shows that the quantity supplied increases as the price rises
A demand curve that illustrates the law of demand ______.
shows the quantity demanded decreases as the price rises
A choice on the margin is a choice that is made by comparing all the relevant _____ systematically and _____.
alternatives; incrementally;
In March 2017, the money price of a carton of milk was $1.76 and the money price of a gallon of gasoline was $2.39. Calculate the relative price of a gallon of gasoline in terms of milk.
1.36 cartons of milk
Which of the following statements is an example of elasticity of supply?
A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent.
Consider the influences on selling plans, and whether the influence changes supply.
A change in the price of rubber balls changes the quantity supplied of rubber balls.
_______ is the social institution that helps the U.S. economy achieve allocative efficiency that Cuba might lack.
Property rights
Which of the following examples describes macroeconomics?
The U.S. unemployment rate has increased by 0.4 percent.
Calculate the cross elasticity of demand for apple juice with respect to the price of orange juice.
The cross elasticity of demand for apple juice with respect to the price of orange juice is 3
Calculate the cross elasticity of demand for a full-size pickup with respect to the price of gasoline
The cross elasticity of demand for a full-size pickup with respect to the price of gasoline is negative 0.50
Which of the following is an example of an incentive?
all conference volunteers would be offered free lunch on all three days
The demand for pens is elastic at _______.
all prices greater than $6 a pen
______ is an example of ______.
bus driver; labor
If a drought is forecast and dairies raise their expected price of low-fat milk next year, the supply of low-fat milk ______ .
does not change today because low-fat milk cannot be stored and sold later
Which one of the following news headlines definitely concerns the social interest?
e coli results must be posted on beaches
The benefit of something is the _____. Benefit is determined by preferences - by what a person _____ and the intensity of those feelings.
gain or pleasure it brings; likes and dislikes
So ______ has a comparative advantage in producing ______.
jacob;pickerel
Economics _______.
a subject that studies choices
The money price of a pound of bananas is $0.40 and the money price of a pack of granola bars is $1.20. The opportunity cost of a pack of granola bars is _______.
3.00 pounds of bananas, which is the relative price of a pack of granola bars
Both Mia and Mario produce only the item in which they have a comparative advantage. Then they trade one pasta for one pizza. Before specialization and trade started, Mia and Mario were each producing 4 dishes of pasta and 4 pizzas an hour. The total gains from trade are ______ dishes of pasta and ______ pizzas an hour.
4,4
Martha can produce 90 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 6 quilts or 18 batches of chocolate chip cookies in a month. Distinguish between comparative advantage and absolute advantage. _______ has an absolute advantage in both goods.
Martha
Which of the following illustrates scarcity?
Megan wants to buy a CD that costs $25 but has only $10 to spend.
Calculate the elasticity of demand when the price rises from $4 to $6 a pen. Over what price range is the demand for pens elastic?
The elasticity of demand when the price rises from $4 to $6 a pen is 0.72
Faced with high gas prices, Americans are substituting smaller cars for SUVs. In April 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent. Full-size pickup sales decreased more than 15 percent in 2008 and Ford F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In California, gasoline consumption decreased by 4 percent in January 2008 from a year earlier. The price of gasoline in January 2008 increased by about 30 percent from a year earlier.
The cross elasticity of demand for a Chevrolet Tahoe with respect to the price of gasoline is negative 1.17
Calculate the elasticity of supply when the price rises from $125 to $135 a pair. Calculate the elasticity of supply when the average price is $125 a pair.
The elasticity of supply when the price rises from $125 to $135 a pair is 3.25 - The elasticity of supply when the average price is $125 a pair is 3.58
Brazil produces ethanol from sugar at a cost of $0.83 per gallon. The United States produces ethanol from corn at a cost of $1.14 per gallon. Sugar grown on one acre of land produces twice the quantity of ethanol as the corn grown on an acre. The United States imports 5 percent of its ethanol consumption and produces the rest itself. Since 2003, U.S. ethanol production has more than doubled and U.S. corn production has increased by 45 percent.
The opportunity cost of producing ethanol has increased since 2003.
A 5 percent rise in the price of orange juice decreases the quantity of orange juice demanded by 20 percent and increases the quantity of apple juice demanded by 15 percent. Calculate the price elasticity of demand for orange juice and the cross elasticity of demand for apple juice with respect to the price of orange juice.
The price elasticity of demand for orange juice is 4.0
William Gregg owned a mill in South Carolina. In December 1862, he placed a notice in the Edgehill Advertiser announcing his willingness to exchange cloth for food and other items. Here is an extract: 1 yard of cloth for 1 pound of bacon 2 yards of cloth for 1 pound of butter 4 yards of cloth for 1 pound of wool 8 yards of cloth for 1 bushel of salt Calculate the relative price of 1 pound of butter in terms of pounds of bacon. If the price of butter is $0.30 a pound, what do you predict is the money price of a pound of wool?
The relative price of 1 pound of butter is 22 pounds of bacon. If the price of butter is $0.30 a pound, you would predict that the price of a pound of wool is $0.60
Is the supply of jeans elastic, inelastic, or unit elastic?
The supply of jeans is elastic
Which of the following is the opportunity cost of attending a ball game?
The things you would have bought with what you spent on the ticket and bus fare getting to the game plus the things you would alternatively have done with your time.
Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. Spam is ______ good because ______.
an inferior; as the income available to buy meat decreases, consumers buy more spam
Social institutions such as firms, markets, property rights, and money _______.
are necessary to make decentralized coordiantion work
Marginal benefit is the _____ that arises from one unit _____ in an activity.
benefit; increase
The marginal benefit of a good or service is the _____
benefit received from consuming one more unit of it.
Rational choice is a choice that uses the available resources to _____ of the person making the choice.
best achieve the objective
The price of food increased during the past year. a. Explain why the law of demand applies to food just as it does to other goods and services.
both a substitution effect and an income effect
A market is an arrangement that brings _____ together and enables them to get information and do business with each other.
buyers and sellers
Marginal benefit from food crops ______
cannot be calculated from the table because marginal benefit is unrelated to production possibilities
What generates economic growth? Economic growth comes from _______
capital accumulation and technological advance
Property rights are legally established titles to the ownership, use and disposal of _____ and goods and services that are enforceable in the courts.
factors of production
When a surplus arises, the price ______ to its equilibrium, which _______.
falls; increases the quantity demanded and decreases the quantity supplied
A tradeoff is _______.
giving up one thing to get something else
Capital accumulation is the _____, including _____ capital.
growth of capital resources; human
The law of demand states that other things remaining the same, the _______ the price of a good, the ______
higher; smaller is the quantity demanded
What does the income elasticity of demand measure? The income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in ______, other things remaining the same.
income
As the average income in China continues to increase, explain how the following will change: a. The demand for beef b. The demand for rice As the average income in China continues to increase, we would expect the demand for beef to _______ and the demand for rice to _______.
increase if beef is a normal good; decrease if rice is an inferior good
Why does economic growth destroy and create jobs? As a country experiences economic growth, investment in capital and advances in technology _________.
increase industrial production but decrease industrial jobs. Jobs are created in the service industry but many workers lack the necessary skills or are unwilling to relocate
Online movie rental service Netflix has introduced a new feature to allow customers to watch movies and television series on their personal computers. Netflix competes with video rental retailer Blockbuster, which added an online rental service to the in-store rental service. The offering of online movie viewing ______ the price elasticity of demand for in-store movie rentals.
increases
If a new technology lowers the cost of producing ice cream, the supply of low-fat milk ______
increases because the supply of ice cream increases and low-fat milk is complement in production of cream, a factor of production of ice cream
The shorter the time that has elapsed since a price change, the more _______.
inelastic is demand
b. Explain how the substitution effect influences food purchases when the price of food rises and other things remain the same.
its relative price rises; purchase more of a different food that is less expensive
______ earns ______.
jeff bezos; profit
a movie star is an example of the factor of production_______
labor
Factors of production are grouped into four categories, which are _______.
land, labor, capital, and entrepreneurship
The marginal benefit curve is a curve that shows the relationship between the _____.
marginal benefit from a good and the quantity consumed of that good
______ has a comparative advantage in quilts. ______ has a comparative advantage in chocolate chip cookies.
martha; jane
Economics is used as a policy tool when economists _______.
model different economic proposals proposed by government
To disentangle cause and effect, economists use economic models and use _______ to test the predictions of those models
natural experiments, statistical investigations, and perform economic experiments
Which of the following news headlines does not deal with scarcity?
netflix stock soars to new high
The quantity demanded of a good or service is _____
not necessarily the same as the quantity actually bought
Marginal benefit from a good or service is the benefit received from consuming ______. It is measured by the most that people are willing to pay for ______
one more unit of it; an additional unit of it
An economic model is a description of some features of the economic world that includes _____ features assumed necessary to explain the _____facts.
only those; observed
The marginal cost of a good or service is the _____
opportunity cost of producing one more unit of it
Marginal cost is the _____ that arises from one unit _____ in an activity.
opportunity cost; increase;
Which of the following examples describes microeconomics?
people prefer buying iphones over nokia phones
Preferences are _____.
people's likes and dislikes and the intensity of those feelings
The price elasticity of demand is calculated by dividing the _______ by the _______
percentage change in the quantity demanded; percentage change in the price
For 50 years, Cuba has had a centrally planned economy in which government makes the big decisions on how resources will be allocated. We would expect Cuba's production possibilities (per person) to be smaller than those of the United States because Cuba _______.
produces a greater proportion of consumption goods than capital goods, so its PPF does not shift outward as quickly as the PPF in the United States
Economics is the _____ the choices that individuals, businesses, governments, and entire societies make as they _____, and the influences on those choices, and the arrangements that coordinate them.
social science that studies; cope with scarcity
which of the following statements are normative: 1- we ought to have a cure for cancer 2- people who buy weekly lottery tickets win a prize at least once a year 3- most household work is done by women 4- greece is the best place to vacation
statements 1 and 4 are normative
choose correct statements: a) there is no relationship between the opportunity cost of producing an additional good measured on the x axis and the opportunity cost of producing an additional good measured on the y axis b) opportunity cost of a good is the decrease in the quantity porduced of one good divided by the increase in the quantity produced of another good as we move along the ppf c) opportunity cost is a ratio d) opportunity cost of a good is the increase in quanitty produced of one good divided by the decrease in quantity
statements b and c are correct
Economic growth is defined as the _____ .
sustained expansion of production possibilities
What does the supply curve tell us about the producer's minimum supply price?
tells us the lowest price at which someone is willing to sell
A demand curve _______.
tells us the maximum that someone is willing to pay for an additional unit of a good or service
Technological change is _____ new goods and of _____ of producing goods and services.
the development of; of better ways
The opportunity cost of producing an additional ton of food crops is equal to ______.
the inverse of the opportunity cost of producing an additional barrel of ethanol
What is the distinction between a money price and a relative price? Consider the money price of a gallon of gasoline and the relative price of a gallon of gasoline. The relative price of a gallon of gasoline in terms of a pound of bananas is ______.
the money price of a gallon of gasoline divided by the money price of a pound of bananas
The elasticity of supply is calculated by dividing ______ by ______.
the percentage change in the quantity supplied; the percentage change in the price
Elasticity of supply measures the responsiveness of the quantity supplied to a change in ______, when all other influences on selling plans remain the same.
the price of a good
c. Explain how the income effect influences food purchases and provide some examples of the income effect.
the price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise
Firms are institutions that organise _____ of goods and services.
the production
Define the price elasticity of demand and show how it is calculated.
the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same
The flows in the market economy that go from firms to households are _______. The flows in the market economy that go from households to firms are _______.
the real flows of goods and services and the income flows of wages, rent, interest, and profit; the real flows of labor, land, capital, and entrepreneurship and the flow of expenditure on goods and services
The relative price of a pack of granola bars is an opportunity cost because ______.
the relative price tells us how many pounds of bananas we must give up to get a pack of granola bars
Allocative efficiency occurs when _____
we are producing at a point on the PPF such that marginal benefit at the quantity produced equals marginal cost
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value most highly; without giving up; value more highly
Why do we need a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price? Because elasticity is a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price, _______.
we can compare the responsiveness of the same good when quantity is measured in different units, or we can compare across different goods
Why do we need a units-free measure of the responsiveness of the quantity supplied of a good or service to a change in its price? Because elasticity of supply is a units-free measure of the responsiveness of the quantity supplied of a good or service to a change in its price, _______.
we can compare the responsiveness of the same good when quantity is measured in different units, or we can compare across different goods
The what, how, and for whom questions in economics are questions about ______.
what goods and services do we produce, how do we use the factors of production to produce these goods, and who consumes the goods and services that are produced
All of the following are consequences of scarcity faced by people in the United States except deciding _______.
whether a tomato is a fruit or a vegetable
If the money price of bacon was 20¢ a pound and the money price of salt was $2.00 a bushel, people _____ buy bacon and trade it for cloth because ______.
would; they could buy 8 yards of cloth for only $1.60, and use that cloth to obtain a bushel of salt
Which of the following is money?
Charlie's checking account deposit at the Bank of America.
Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to go on a cruise, is happy to go to Hawaii, but does not want to go skiing. Pru prefers to go skiing, is happy to go to Hawaii, but does not want to go on a cruise. Pat prefers to go to Hawaii or to take a cruise but does not want to go skiing.
Pam, Pat, and Pru face a tradeoff.
This PPF ______ illustrate scarcity because ______.
does; the firm cannot produce points outside the frontier and as the firm moves along the PPF, it cannot produce more dog biscuits without producing less cat food
Why is the demand for a luxury generally more elastic (or less inelastic) than the demand for a necessity? Demand for a luxury is more ______ than demand for a necessity because a luxury has ______ substitutes
elastic; more
Most likely, the United States ______ achieved production efficiency in its manufacture of ethanol and ______ achieved allocative efficiency in the production of ethanol.
has; has not
The law of supply states that other things remaining the same, the _______ the price of a good, the _____
higher; greater is the quantity supplied
In the summer of 2008, the price of crude oil hit a record high above $135 a barrel. OPEC reported that there was no shortage of oil and that speculators had forced the price up.
increases; decreases
With this new technology, the opportunity cost of producing a ton of trout ______ and the fish farm is ______ efficient.
increases; equally
The fewer the substitutes for a good or service, the more ______ is the demand for it. The smaller the proportion of income spent on a good, the more ______ is the demand for it.
inelastic; inelastic
[Study ranks] Honolulu number 3 in the world for the most unaffordable housing market in urban locations, behind Los Angeles and San Diego and is deemed "severely unaffordable." With significant constraints on the supply of land for residential development, housing inflation has resulted. The supply of housing in Honolulu is ______. The ______ elastic the supply of housing, the greater the rise in the price of housing when demand increases.
inelastic; less
The cost of regenerating East London ______ an opportunity cost of hosting the 2012 Olympic Games ______.
is; if the regeneration of East London would not occur unless London hosted the 2012 Olympics
The opportunity cost of catching a pound of pickerel is ______ for Jacob than for Zeb, and the opportunity cost of picking a pound of bananas is ______ for Jacob than for Zeb.
lower; higher
the income elasticity of demand for Spam is _______ because as income falls, the quantity of Spam demanded _______.
negative; increases
The cross elasticity of demand for online movies and in-store movie rentals is ______. The cross elasticity of demand for online movies with respect to high-speed internet service is ______.
positive; negative
When a shortage arises, the price ______ to its equilibrium, which _______.
rises; decreases the quantity demanded and increases the quantity supplied
Think of examples of goods whose relative price has risen or fallen by a large amount. In 2007, the price of a gallon of gas was $2.59. In 2017, the price of a gallon of gas was $2.32 In 2007, the price of a dozen eggs was $1.63. In 2017, the price of a dozen eggs was $1.40. Between 2007 and 2017, the relative price of a gallon of gas with respect to a dozen eggs _______ and the relative price of a dozen eggs with respect to a gallon of gas _______.
rose; fell