Econ Pre Test 1

All of the following are ways the government can correct positive externalities except

imposing positive taxes

Demand curves are drawn with determinants other than the price of the good held constant. the other determinants, called ceteris paribus conditions, are (1)_________, (2)__________, (3)__________, (4)__________, and (5)___________ at any given price. If any one of these determinants changes, the demand curve will shift to the right or to the left. A change in demand comes about only because of a change in the ____________ conditions of demand. This change in demand is a shift in the demand curve to the left or to the right. A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant ). such a change in quantity demanded involves a ____________ a given demand curve.

1. Income 2. Taste and preferences 3. prices of related goods 4. expectations about future prices and incomes 5. the number of potential buyers in the market Ceteris Paribus Movement Along

Suppose that the price of a pair of shoes is $5 and the price of a box of tea is $3. What is the relative price of a pair of shoes? What is the relative price of a box of tea?

1.667 ; 0.600

The equilibrium price for pizza is $_____ and the equilibrium quantity is _____ pizzas. Chart; price : 4 - 14 , QD : 180-130, QS : 90-190

10, 150

Now suppose that the supply increases such that the quantity supplied increases by 60 more pizzas at every price . The new equilibrium price is $____ and the new equilibrium quantity _____ pizzas Chart; price : 4 - 14 , QD : 180-130, QS : 90-190

6, 170

What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external shock?

A new equilibrium price will be achieved over some period of time

Which of the following will cause an outward (rightward) shift in supply?

A technological improvement

If the number of firms in an industry decreases, the supply curve will shift to the right A change in which of the following will result in a shift of the supply curve

False All of the above

Shortages and scarcity are the same thing A shortage occurs when quantity demanded is ___________________ than quantity supplied at a price _____________ the market clearing price

False Greater, below

Markets which are temporarily out of equilibrium will always return to equilibrium immediately.

False

When both supply and demand curves change, the outcome is definite for both equilibrium price and equilibrium quantity

False

When the _________ curve shifts outward or inward with an unchanged __________ curve, equilibrium price and quantity increase or decrease, respectively. When the __________ curve shifts outward or inward given and unchanged __________ curve, equilibrium price moves in the direction opposite to equilibrium quantity. When there is a shift in demand or supply, the new equilibrium price is not obtained ____________ Adjustment _________________

Demand Supply Supply Demand Immediately takes time

There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes

Demand decreases and supply decreases

There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous increase in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?

Demand increases and Supply decreases

What if the increase in demand were smaller than the increase in supply

Equilibrium price falls and quantity rises

A rise in demand is represented by a leftward shift in the demand curve, and a fall in demand is represented by a rightward shift in the demand curve

False

Market failure refers to a situation where a market economy collapses

False

A change in a good's own price leads to a change in supply, which shifts the supply curve. Whenever there is a change in a ceteris paribus condition there will be a change in ___________, which is represented by a __________.

False Supply; Shift in the entire supply curve

Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements II. An increase in the number of consumers in the market for e-book readers III. A decrease in the price of tablet devices, which are substitutes IV. A reduction in the income of consumers of e-book readers

I, III, and IV

Consider a nation with a government that does not provide people with property rights for a number of items and that falls to enforce the property right it does assign for remaining items. Externalities would be ________ common in this nation than in a country such as the United States.

More

Suppose that you are investigating the market for wheat. The price of corn, a substitute good, has decreased. Which of the following would best be describe the market reaction to this event?

The demand for wheat decreases, which creates a surplus of wheat, causing the price of wheat to decrease

What if the increase in demand were larger that the increase in supply

The equilibrium price and quantity increase

Suppose that at first price of bag of coffee is $10 and the price of a box of tea is $6. Then, the price of a bag of coffee changes to $20 and the price of a box of tea changes to $14. What has happened the money prices and relative prices of these two goods?

The money price of a bag of coffee and a box of tea have risen and the relative price of a bag of coffee has fallen while relative price of a box of tea has risen.

Based on the table above, which of the following is true? Table; Hospital Room $200 > $225 Hotel Suite $300 >325

The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.

The market for corn is initially in equilibrium. Suppose the production of biofuels, which use corn as an input , decreases, and at the same time, decreases in the price of oil cause farm production costs to fall. Which of the following explains the effect on equilibrium price and quantity in the corn market?

The price of corn will fall, but the effect on equilibrium quantity cannot be determined without more information

Last year, the price of chicken was $6 per pound and the price of fish was $7 per pound. This yea, the price of chicken is $10 per pound and the price of fish is $11 per pound. All other things equal, and assuming that Brian purchased both items before, what would you expect to happen to his purchases of chicken (relative to fish) this year?

The relative price of chicken has increase, so Brian would be expected to purchase less.

A market supply curve is derived by summing the individual producers' supply curves

True

At equilibrium, there is neither excess quantity supplied nor excess quantity demanded

True

Consumer sovereignty means that consumers have the individual freedom to decide what they wish to purchase

True

A change in a good's own price leads to a change in quantity demanded for any given demand curve Whenever there is a change in a ceteris paribus condition there will be a change in _________________, which is represented by a __________________

True Demand, shift in the entire demand curve

A market demand curve by summing (at each price) the individual quantities demanded by all buyers in the market. A demand schedule gives a schedule of __________ quantities demanded per time dimension at ___________

True Alternative, different possible prices

Which of the following good is an inferior good?

When consumer income increases, the demand for eggs decreases

Which of the following will cause the demand curve to shift?

a change in consumer income

Consider in the graph to the right the demand curve for bananas. The movement from point A to point B could have been caused by

a decrease in the price of bananas

There is normally ________ relationship between price and quantity of a good supplied, other things held constant The _________ curve normally shows a direct relationship between price and quantity supplied The _________________ curve is obtained by horizontally adding individual supply curves in the market

a direct supply market supply

The Law of Supply states that there is ___________ relations ship between the price and _________________________

a positive ; the quantity supplied

All of the following will decrease the supply of airline flights except

a technological change that makes airplanes safer and more fuel-efficient

Indicate whether the following events would cause an "increase or a decrease in demand" or an "increase or a decrease in the quantity demanded" for a cable-based internet access service, which is a normal good a. Firms providing wireless (an alternative to cable) internet access services reduce their prices. This will cause a(n) b. Firms providing cable-based internet access reduce their prices. This will cause a(n) c. There is a decrease in the incomes earned by consumers of cable-based internet access services. This will cause a(n) d. Consumers' tastes shift away from using wireless internet access in favor of cable-based internet access services

a. Decrease in demand b. Increase in quantity demanded c. Decrease in demand d. Increase in demand

Consider the market for economics textbooks. Explain whether the following events would causes an increase or a decrease in supply or an increase or a decrease in the quantity supplied a. The market price or paper increase. This will cause a(n) b. The market price of economics textbooks increases. This will cause a(n) c. The number of publishers of economics textbooks increases. This will cause a(n) d. Publishers expect that the market price of economics textbooks will increase next month this will cause a(n)

a. decrease in supply b. increase in quantity supplied c. increase in supply d. decrease in supply

Assume that the cost of aluminum used by soft-drink companies increases. Indicate which of the following statements describing the resulting effects in the market for soft drinks distributed in aluminum cans are true (T) or false (F) a. The demand for soft drinks decreases b. The quantity of soft drinks demanded decreases c. The supply of soft drinks decreases d. The quantity of soft drinks supplied decreases

a. f b. t c. t d. f

A supply schedule of _________ quantities supplied per time dimension at

alternative; different possible prices

Which of the following is consistent with the law of supply

an increase in the market price of MP3 players causes an increase in the production of MP3 players

Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct for the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. These actions by the government lead to all the following outcomes, except

an increase in the negative externality caused by cigarette smoking.

The relative price of any commodity is its price in terms of

another commodity

The law of demand states that

as price increases, quantity demanded decreases, all other things equal

The law of supply states that

as price increases, quantity supplied increases, all other things equal

The quantity of oil storage supplied nationwide at current prices has been

below the space demanded by oil producers

Suppose that paper is necessary to produce books. If the price of paper rises, the supply curve of

books shifts to the left

According to the same example in the book, medical research has shown that grapefruit juice can reduce the effectiveness of certain medications. however there is also evidence that grapefruit consumption can lower cholesterol in young people. The net effect on demand from these two findings

cannot be determined because they have opposite effects on demand

When both supply and demand decrease, the equilibrium price ___________ and the equilibrium quantity ____________

change in uncertain ; decreases

According to the text, firms encounter rising cost s when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is

direct (or positive) and is called the law of supply

According to the law of supply, the quantity supplied of any commodity is ___________ related to its price, other things being equal

directly

If the demand and supply curves increase (shift outward) by identical proportions then

equilibrium price stays the same and quantity rises

A cost or benefit of an economic activity that has an impact on an impact on an individual's well-being, even thought the individual was not directly involved in the activity, is knowing as a(n)

externality

A cost or benefit of an economic activity that has an impact on an individual's well-being, even though the individual was not directly involved in the activity, is known as a(n)

externality

A surplus occurs when quantity supplied is ___________ then quantity demanded at a price____________ the market clearing price.

greater, above

If demand increases while supply remains unchanged, the equilibrium price of the product will _________ and the equilibrium quantity will __________

increase ; increase

According to the law of demand, the quantity demanded of any commodity is ___________ related to its price, other things being equal

inversely

If producers have to pay external costs, the supply curve will shift to the _______, and if consumers take external benefits into account, the demand curve will shift to the __________

left, right

According to the law of supply, as the price of the good increases , it causes a (The Law of Supply)

movement upward along the supply curve

Increases in oil storage prices could be required to induce owners of aged storage tanks to increase the quantity of tank storage space supplied because

owners must incur expense to refurbish storage tanks

According to the example in the book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grape fruit because

people will buy less grapefruit because their tastes and preferences have changed

When demand decreases and the (upward sloping) supply curve remains in the same position

price falls and equilibrium quantity falls

When supply increase and the (downward-sloping) demand curve remains in the same position

price falls and equilibrium quantity rises

At the market equilibrium price

quantity demanded equals quantity supplied

Thus, as the price increases, the (The Law of Supply)

quantity supplied by firms increases

People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increase in the aftermath of a disaster. One would expect

reconstruction to take longer because the quantity supplied of new materials would increase more slowly

For substitutions, a change in the price of a product will cause a change in demand in the _______ direction for the other good. For complements, a change in the price of a product will cause a change in demand in the ______ direction for the other good.

same, opposite

Market failure occurs because

the market system does not make individuals responsible for the social cost/benefits of their actions

The more flexible prices are,

the more quickly a shock to the economy can be absorbed

After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents' and students' valuations of the service provided at both private public schools adjust to equality with the true market price of educational services. As a result of this voucher program

the public schools will lose

As more new domestic oil production has occurred, demand for oil storage space has increased because

the traditional means of domestic transport have proved insufficient to handle the expanded flow of domestic oil production