Econ Exam 1
In the week before Hurricane Katrina, the price of flashlights rose in New Orleans because of:
An increase in demand.
An increase in the demand for organic foods will lead to:
An increase in the price, and hence an increase in the quantity supplied of organic foods.
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.
Select every area on the graph that represents producer surplus.
B
Which of the following is the best definition of the opportunity cost of a decision?
Benefits from the best foregone alternative.
The table shows the units of steel and personal computers a worker can produce per month in Germany and South Korea. Use this table to answer the question. Which statement about absolute advantage is true?
Germany has an absolute advantage in the production of both steel and PCs.
Scarcity
Is when there isn't enough to satisfy all our wants.
Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. What will happen to the equilibrium quantity in the electric vehicles market?
It increases.
The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. How will reducing the subsidy affect the equilibrium price?
It increases.
Trade makes people better off when:
People have different preferences.
The accompanying graph represents a demand curve for a bucket of golf balls at the local driving range. Use the graph below to illustrate graphically the effects of an increase in price from $5 per bucket, denoted by the point P★, to $7 per bucket. Based on your movement of the graph, which of the following correctly describes the law of demand.
Price and quantity demanded move in the opposite direction.
In a market, the equilibrium condition is given by the following:
Quantity demanded = quantity supplied
Quentin is willing to pay $1000 for a new phone. When he gets to the store, he finds the cell phone he wants is priced at $650. Which of the following is TRUE?
Quentin will lose $350 of consumer surplus when he purchases the cell phone.
For most of human history, salt was a rare and valuable commodity that had to be either mined or extracted from the ocean through evaporation. This changed when modern chemistry allowed humans to produce it in factories. How did this development affect the market for salt?
Supply increased, causing the price to fall.
Pipefitter union workers have demanded that all employers of pipefitters provide health insurance at no cost to the pipefitter. What will happen to the supply of goods produced in factories employing pipefitters?
Supply will decrease, shifting up and to the left.
In economics, what is meant by "optimal decisions are made at the margin?"
The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.
You are the manager of Frito-Lay's Cheese Puffs account, and you notice that when the price of Cheetos increases, there is an increase in demand for Cheese Puffs. What is the economic relationship between these goods that explains this behavior?
The increase in the price of Cheetos causes an increase in the demand for Cheese Puffs; therefore, these goods are substitutes.
When Asha has a comparative advantage over Jabri in welding, it means that:
The opportunity cost of welding is lower for Asha than for Jabri.
Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, who is Jon competing with: the seller of the graphic novel or the other bidders? Jon is competing with
The other bidders.
Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?
The price of Coke decreases.
What effect do computer chip sellers' expectations of falling chip prices in the coming months have on current computer chip market?
The supply of computer chips increases, pushing down the equilibrium price and increasing the equilibrium quantity.
The COVID-19 pandemic caused many gyms to close down. The supply and demand model would predict which of the following events in gym membership market?
The supply of gym memberships would decrease, resulting in higher equilibrium price and a lower equilibrium quantity.
If the price of baseballs goes up from $7.99 to $14.99, what can be expected from suppliers of baseballs as a result?
There will be an increase in quantity supplied.
If the price of tennis balls goes up from $7.99 to $14.99, what can be expected from suppliers of tennis balls as a result?
There will be an increase in quantity supplied.
When the crime rate falls in the area around a factory, what probably happens to wages at that factory?
Wages fall due to an increase in labor supply.
After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year and he decides he's had enough bad tasting coffee. He ends up buying coffee daily from Starbucks even though it costs significantly more. Andrew's demand for Starbucks coffee changed as a result of:
a change in income.
According to the theory of comparative advantage, a country should specialize in producing a good that involves:
a lower opportunity cost than that of other countries.
Suppose the price in a market is above the equilibrium price. This situation will create
a surplus.
Which can cause a shift in the demand curve? A change in:
one of the determinants of demand
If the market for Apple Watches experiences a surplus, then the:
price of Apple Watches will fall.
What's the best way to think about the rise in oil prices in the last 10 years, as China and India have become richer: Was it a rise in demand, a fall in demand, a rise in supply, or a fall in supply? The price rose due to a
rise in demand.
The table shows the tons of steel or number of computers a worker can produce per year in Germany and South Korea. Use this table to answer the question. Germany should:
specialize in steel production, export steel, and import computers.
Select the correct definition of the term "comparative advantage."
the ability to produce a good or service at a lower opportunity cost than another
Michael is fired from his job after working there for over 20 years, and eats out less as a result. In the market for restaurants,
the demand curve shifts.
Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
the laws, social norms, and conventions of a culture
Producer surplus is the difference between
the market price and the minimum price a seller is willing to accept.
Consumer surplus is equal to the difference between
the maximum price a buyer is willing to pay and the market price.
Technological advances have increased the supply of digital cameras. As a result, the:
the quantity demanded for digital cameras will increase.
Researchers develop a higher yielding, insect-repellant strain of rice. In the market for rice,
the supply curve shifts.
The price of goose feathers, an input for pillows, increases sharply. In the market for pillows,
the supply curve shifts.
Consumer surplus is shown graphically as the area
under the demand curve and above the market price.
Which of the choices illustrates the law of demand? Pat...
wants to buy more candy bars at $1 than at $2.
A surplus exists
when quantity supplied exceeds quantity demanded.
Consider the table below. Assuming the law of demand holds, the cell labeled "?" could be which of the following quantities?
153
Dante is an artist who produces custom-made greeting cards and artistic posters. Helena is an equally talented artist who can produce these items as well. According to the table on production possibilities. Dante's opportunity cost of producing artistic posters is ________, and Helena's opportunity cost of producing artistic poster's is ________.
2 greeting cards; 6 greeting cards
A farmer produces both beans and corn on her farm. If she must give up 1616 bushels of corn to be able to get 66 bushels of beans, then her opportunity cost of 11 bushel of beans is
2.67 bushels of corn.
According to the table on production possibilities for the United States and Mexico, Mexico's opportunity cost of producing each ton of potatoes is _______, while the United States's opportunity cost of producing each ton of potatoes is _______.
8 tons of corn; 5 tons of corn.
Select every area on the graph that represents consumer surplus.
A
If the government institutes a tax on suppliers of Cheesy-Poofs, the market for Cheesy-Poofs will see:
A decrease in supply, decrease in quantity demanded, and an increase in price.
What would cause the supply curve to shift from S1 to S2 as shown in the diagram?
A decrease in the wages paid to union workers who produce the output
Which of the following choices correctly illustrates how changes in opportunity costs affects supply?
A farmer produces corn and wheat. The price of wheat rises, so he shifts his resources toward wheat and the supply of wheat rises.
Select every area on the graph that represents social surplus.
A,B
Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Describe the impact this will have on the market for bricks. What will happen with supply and demand in the market for bricks?
Demand for bricks will increase.
Imagine a free market in which at a price of $10, quantity supplied is 50 units and quantity demanded is 40 units. Equilibrium price in this market:
less than $10.
Producer surplus is shown graphically as the area
above the supply curve and below the market price.
The table presents information about the productivity of digital cameras and personal computers in the United States and Japan. The data are presented in units of output per hour of work. Use this information to answer the question. Japan has a(n) ___________________ advantage in producing ______________________ .
absolute, personal computers
Lower gasoline prices have led to an increase in the demand for large SUVs. Consequently, in the market for SUVs, economists are predicting:
an increase in both the price and quantity of sales.
A local university decides to double its enrollment over the next five years in order to increase tuition revenue. Which of the following would most likely occur in the market for rental housing in the surrounding community?
an increase in demand for rental housing.
In the figure, a movement from S1 to S2 represents:
an increase in supply.
Adam graduates from college, and his income increases by $40,000 a year. Other things held constant, he decreases the quantity of pizza he buys. For Adam, pizza is:
an inferior good.
Which of the four options best represents specialization and its relationship with trade?
comparative advantage
If the price of Nike Air Max 1 shoes is below the equilibrium price:
competition will eventually push the price up.
When there is a surplus, sellers have an incentive to ________ their price and buyers have an incentive to offer a _______ price.
decrease; lower
The price that results when quantity demanded equals quantity supplied is most correctly called the
equilibrium price.
When supply falls, what happens to quantity demanded in equilibrium? (This should get you to notice that both suppliers and demanders change their behavior when one curve shifts.) Quantity demanded
falls.
Milk and cereal are an example of complementary goods. Which definition best describes this relationship?
goods related in such a way that an increase in price of one leads to a decrease in the demand for the other
As would coal prices due to increasing scarcity and coal-based energy costs rise, the demand for wind energy will:
increase.
Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Describe the impact this will have on the market for bricks. Equilibrium price of bricks
increases.
Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Describe the impact this will have on the market for bricks. Equilibrium quantity of bricks
increases.
As trade becomes more widespread, specialization ______________, which in turn ________________ productivity.
increases; increases
Point A represents an allocation of resources that is:
inefficient.
When trading with more developed countries,
less developed countries have a comparative advantage in the production of some goods or services.