ECON-B 251 Exam #1 Study Guide

Business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?

"My customers are real shoppers. After I cut my prices just a few cents below those my competitors charge, customers have been flocking to my store and sales are booming."

The fact that people with higher incomes get to consume more goods and services addresses the _____ question.

"for whom?"

When an economy produces more smartphones and fewer cars, it is answering the _____ question.

"what?"

One economist says that raising taxes on gas would be in the social interest. What does this economist mean?

Higher taxes on gas would benefit society as a whole.

Which of the following is a microeconomic topic?

How rent ceilings impact the supply of apartments.

Point ___ on the production possibilities curve in the above diagram illustrates an unattainable point.

L

Which of the following shifts the supply curve rightward?

a decrease in the price of the resources used to produce the good

Point N in the above diagram illustrates

a production point that has underutilization of resources.

Economic growth comes from

capital accumulation and technological advance.

A 0.5 percent change in the growth rate

has a significant effect on long-run output (real GDP) over time.

During the next hour John can play basketball, watch television, or read a book. The opportunity cost of reading a book

is the value of playing basketball if John prefers that to watching television.

Tyree receives a bonus at work and his income increases by $40,000 a year. As a result, Tyree decreases the quantity of T-shirts he buys and increases the quantity of movies he buys/rents. For Tyree, movies are

normal goods

Strategic decisions include Choose all that apply.

other's decisions one's own benefits one's own costs

If the price elasticity of demand is elastic then the _____ is greater than the _____.

percentage change in quantity demanded, percentage change in price

If the price of an coffee increases, holding all else constant, then the _____ of coffee _____.

quantity demanded for, decreases

The elasticity of supply measures the sensitivity of the

quantity supplied to a change in the price

Along the supply curve, price and _____ are _____ related.

quantity supplied, directly

If Shen produces both paninis and burgers, then when production is efficient,

there is no tradeoff between paninis and burgers.

When demand is price elastic for cookies, if a firm increases the price of cookies, then its _____ will _____.

total revenue, decrease

Scarcity guarantees that

wants will exceed demands.

The marginal benefit of a good or service is measured by

willingness to pay for an additional unit of it.

In a year, Keisha produces 40 sandwiches or 100 cups of coffee. In a year, Doug produces 30 sandwiches or 90 cups of coffee. Based on this information, _____ has an absolute value in cups of coffee. _____ has a comparative advantage in cups of coffee.

Keisha, Doug

Which of the following are characteristics of markets? Choose all that apply.

Markets determine the terms of exchange (price) of goods and services. Represents a voluntary exchange between buyers and sellers.

Which of the following correctly describes how price adjustments eliminate a shortage? As the price _____, the quantity demanded _____ while the quantity supplied _____.

increases, decreases, increases

The demand for apples increases. As a result, the equilibrium price of apples _____ and the equilibrium quantity of apples _____.

increases, increases

Suppose that for the past two months, you have studied economics one hour a day. You now decide to study economics two hours a day. For the past two months, your _____ of studying of studying economics for an hour must have _____.

marginal benefit, exceeded your marginal cost

Rational decision makers are called

maximizers

As the price decreases along a linear demand curve, the price elasticity of demand becomes

more inelastic

When consumers' incomes increased 10 percent, the quantity of milk bought increased 5 percent. This result means milk is a(n) _____ good.

necessity

Suppose the price of a box of macaroni and cheese increases from $1 to $2 each. The degree to which quantity demanded responds to this price increase depends on the

price elasticity of demand

The price elasticity of demand for furniture is estimated at 1.3. This value means a one percent increase in the _____ will _____ the _____ by _____ percent.

price of furniture, decrease, quantity of furniture demanded, 1.3

A determinant of the price elasticity of supply is the extent to which

production of the good uses commonly available resources.

In a year, Keisha produces 40 sandwiches or 100 cups of coffee. In a year, Doug produces 30 sandwiches or 90 cups of coffee. To maximize their total output of sandwiches and cups of coffee Keisha should specialize in _____ and Doug should specialize in _____.

sandwiches, cups of coffee

Demand is perfectly inelastic when

shifts of the supply curve results in no change in quantity demanded.

At a price of $4 in the above figure a(n) _____ of ___ occurs.

shortage, 200

People buy more of good 1 when the price of good 2 rises. These goods are

substitutes.

Coffee beans are used to produce coffee. If the price of coffee beans increases, then the _____ coffee _____.

supply of, decreases

You observe that the equilibrium price of a good rises and the equilibrium quantity decreases. These observations can be the result of the _____ curve shifts _____.

supply, leftward

Two business owners, Allison and Bianca, have identical production possibilities frontiers illustrated above. If Allison produces at point a and Bianca produces at point b, then

Allison's future consumption will be greater than Bianca's.

The production possibilities curve illustrates

the combination of goods and services that can be produced efficiently

The ultimate cost of any choice is

the highest-valued alternative forgone.

A fall in the price of a good causes producers to reduce the quantity of the good they are willing to produce. This fact illustrates

the law of supply.

Which of the following are true regarding "positive" statements? I. They describe what "ought to be." II. They describe what is believed about how the world appears. III. They can be tested as to their truthfulness.

II and III

The figure above shows supply curves for soft drinks. The price of soft drinks increases is best shown as moving from points

a to d

Consider a PPC for tapes and soda. If the opportunity cost of a tape increases as the quantity of tapes produced increases and also the opportunity cost of a soda increases as the quantity of soda produced increases, then the PPC between the two goods will be

bowed outwards

By specialization and trade, two individuals can

consume at a point beyond their individual production possibilities frontiers.

Hot dogs and hot dog buns are complementary goods. The _____ elasticity between these two good is _____.

cross-price, negative

Coffee and tea are substitutes in consumption. If the price of coffee increases, then the _____ tea _____.

demand for, increases

A normal good is a good for which

demand increases when income increases.

You notice that the equilibrium price and quantity of wheat both decrease. This observation can be the result of the _____ curve for wheat shift _____.

demand, left

The more the available substitutes for a good or service, the more price _____ the demand. The larger the proportion of income spent on a good or service, the more price _____ the demand.

elastic, elastic

When Shin receives a 3 percent pay increase, he increases the amount of coffee he buys by 4 percent each month. Given this information Shin's demand for coffee is income _____ and coffee for Shin is a(n) _____ good.

elastic, normal

All economic questions are about

how to cope with scarcity.

All economic questions are about

how to deal with scarcity

Because we face scarcity, every choice involves

trade-offs

You decide to take a vacation and the trip costs you $2,000. While you are on vacation, you do not report to work where you could have earned $750. The opportunity cost of the vacation is $

2,750

Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity demanded from 12,500 to 11,500 bushels. The price elasticity of demand is ___.

0.5

Which of the following best explains an increase in the equilibrium price of gasoline and a decrease in the equilibrium quantity of gasoline?

The price of oil, which is used to produce gasoline, increases.

Which of the following is a microeconomic question? Choose all that apply.

Will taxing pizza increase the amount of pizzas sold? Will a shortage of electricians lead to increase in their wages?

Which of the following is a normative statement?

You should eat less candy.

When the price of a pizza increases from $10.00 to $11.00, the quantity demanded of a pizza decreases from 10 pizzas to 9 pizzas. Given this information, the price elasticity of demand is ___.

1.11

When the price of a movie download increases by 3 percent, the quantity demanded of movie downloads decrease by 4 percent, then the price elasticity of demand for movie downloads is ___.

1.33

The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. The opportunity cost of your evening at the movies is ___ percent.

10

Suppose two countries have a per capita real GDP of $25,000 in 2016. Econoland has a growth rate of 4 percent and Micropolis has a growth rate of 5 percent. By 2019, the per capita real GDP for Econoland is $_____.

28121.60

Suppose two countries have a per capita real GDP of $25,000 in 2016. Econoland has a growth rate of 4 percent and Micropolis has a growth rate of 5 percent. By 2019, the per capita real GDP for Micropolis is $_____.

28940.63

The above table shows the market for chocolate chip cookies. The equilibrium price is $___ and the equilibrium quantity ___ pounds of cookies.

5, 4

Which of the following is a positive statement?

A 10 percent increase in income leads to a 4 percent increase in the consumption of beef.

A change in which of the following alters buying plans for cars but does NOT shift the demand curve for cars?

A 20 percent increase in the price of a car.

Which of the following causes a movement up along the per-worker production function?

An increase in the amount of capital.

Which of the following are true statements? Choose all that apply.

Economists try to isolate cause and effect relationships. Economists use empirical analysis, as well as natural and economic experiments.

The principle of decreasing marginal benefit implies the

additional benefit from obtaining one more of a good or service decreases as more is consumed.

Both Mergatroid and the Geebocks produce only gizmos and widgets. It is possible for Mergatroid to have

an absolute but not a comparative advantage in both products.

If the supply of spring water decreases and at the same time the demand for spring water increases, the equilibrium price _____ and the equilibrium quantity _____.

increases, might increase, decrease or stay the same

When the price of a pair of black shoes increases by 10 percent, the quantity demanded of a pair of black shoes decrease by 4 percent, then the price elasticity of demand for a pair of black shoes is

inelastic

Production efficiency requires that

it is impossible to produce more of one good without producing less of some other good. resources are used fully and is currently fixed. production is at a point on the PPC.

An economy produces face masks. If the economy achieves allocative efficiency, then

it produces the quantity on the PPC that is valued most highly.

The greater the substitutability between Northwest timber and Southeast timber, the _____ is the cross elasticity of demand between timber from the two regions and the _____ is the elasticity of demand for Northwest timber.

larger, larger

More people prefer 5G smartphones and the technology for 5G smartphones improves. As a result, the equilibrium price of 5G smartphones _____ and the equilibrium quantity of 5G smartphones _____.

may increase, decrease or remain unchanged, increases

Price elasticity of demand Choose all that apply.

measures the price sensitivity of quantity demanded. is a units-free measure.