ECON130 HW1-4

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambiguous.

Ashley bakes bread that she sells at the local farmer's market. If she purchases a new convection oven that reduces the costs of baking bread, the

supply curve for Ashley's bread will increase.

Refer to Figure 2-5. The opportunity cost of this economy moving from point A to point B is

1 dryer

Which of the following statements about market economies is correct?

1, In a market economy, no one is looking out for the economic well-being of society as a whole. People are motivated mainly by self-interest. 2, Market economies are characterized by decentralized decision making and self-interested decision makers. 3, Market economies have proven remarkably successful in promoting overall economic well-being. (All of the above are correct.)

In a competitive market, the price of a product

1, is determined by buyers, and the quantity of the product produced is determined by sellers. 2, is determined by sellers, and the quantity of the product produced is determined by buyers. 3, and the quantity of the product produced are both determined by sellers. (None of the above is correct.)

On a bowed production possibilities frontier, as you move down along the curve

1, more of one good must be given up to receive one unit of the other good. 2,. the available production technology does not change. 3. the opportunity cost increases. (All of the above are correct.)

In a market economy, supply and demand are important because they

1, play a critical role in the allocation of the economy's scarce resources. 2, determine how much of each good gets produced. 3, can be used to predict the impact on the economy of various events and policies. (All of the above are correct.)

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

1.2, and X and Y are substitutes.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33.

Refer to Table 3-3. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is

24 units of cheese and 15 units of wine

Refer to Table 3-3. Which of the following combinations of cheese and wine could England NOT produce in 40 hours? Hint: use the calculations from opportunity cost

26 units of cheese and 4 units of wine

What is the total output for both goods if France and England produced based on their specialization. Assume that they will ONLY produce what they specialize in.

40 Cheese and 20 Wine

Which one of these scenario does not take place in the market for factors of production

A family enlists the services of a nanny to watch their children

Which one of these statements is FALSE

A producer can have the comparative advantage in both goods

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?

A women buys food from a grocery store

Refer to Figure 2.2 Suppose that Costco is directly purchasing computers from Microsoft in order to retail at wholesale. Which of the arrows represents the money Microsoft receives from this order?

B to C

Refer to Figure 2.2 Suppose Mary hires a groomer at Petco to have someone wash their dog. Which of the arrows represents Mary receiving this service?

C to A

If an economy is producing efficiently, then

there is no way to produce more of one good without producing less of another good.

Which of the following demonstrates the law of demand?

Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.

With respect to how economists study the economy, which of the following statements is most accurate?

Economists devise theories, collect data, and analyze the data to test the theories.

Who has the absolute advantage in producing cheese?

England

Who has the comparative advantage in producing cheese?

England

Which of these trades leads to a gain for both goods for both countries? Hint: compare to what you got in the question "Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is"

England gives France 10 Cheese for 8 Wine

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Refer to Figure 2.2 Suppose a student finds a part time job at their university and receives a semi-monthly salary. To which of the arrows does this transaction directly contribute?

From Box D to B

Which one of these assumptions is incorrect?

Households and firms own all factors of production

Assume Leo buys coffee beans in a competitive market. It follows that

Leo cannot influence the price of coffee beans even if he buys a large quantity of them.

In the short run, am increase in the money supply is likely to lead to

Lower unemployment and higher inflation.

Refer to Figure 2-4. This economy has the ability to produce at which point(s)?

R, T, U

Which of the following statements is an example of a positive as opposed to normative, statement?

Reducing emissions reduce days missed from school due to asthma.

(HW1)Economics deals primarily with the concept of

Scarcity

Refer to Figure 2-4. Inefficient production is represented by which point(s)?

T

Rational people make decisions at the margin by

The benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?

The economy experiences economic growth.

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks?

The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous.

Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

The income elasticity is 1 so pizza is a normal good.

When can two countries gain from trading two goods?

Two countries could gain from trading two goods under all of the above conditions.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

a 13.33 percent increase in the price of the good

Which of the following changes would not shift the demand curve for a good or service?

a change in the price of the good or service

If toast and butter are complements, then which of the following would increase the demand for toast?

a decrease in the price of butter

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? Hint: Assume wool and cotton are substitutes

a decrease in the price of wool shirts and a decrease in the price of raw cotton

When the price of a good is higher than the equilibrium price,

a surplus will exist

Inflation is defined as

an increase in the overall level of prices in the economy

If a shortage exists in a market, then we know that the actual price is

below the equilibrium price, and quantity demanded is greater than quantity supplied.

(HW3) In a market economy, supply and demand determine

both the quantity of each good produced and the price at which it is sold.

For an economist, the idea of making assumptions is regarded generally as a

good idea, since doing so helps to simplify the complex world and make it easier to understand

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology.

(HW2)The production possibilities frontier is a graph that shows the various combinations of output that an economy

can produce.

The most obvious benefit of specialization and trade is that they allow us to

consume/produce more goods than we otherwise would be able to consume/produce

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of

crystal to increase.

A leftward shift of a demand curve is called a(n)

decrease in demand.

A movement upward and to the left along a demand curve is called a(n)

decrease in quantity demanded

(HW4) When studying how some event or policy affects a market, elasticity provides information on the

direction and magnitude of the effect.

Economists sometimes give conflicting advice because

economists have different values and scientific judgment.

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be

elastic

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

The production possibilities frontier provides an illustration of the principle that

people face trade-offs

If there were a higher tax placed on cigarettes, what would be the change in equilibrium price and quantity?

equilibrium price and quantity will decrease

Assume that pizza and Pepsi are complements. If the price of pizza were to decrease, how will this affect equilibrium price and quantity for Pepsi?

equilibrium price and quantity will increase

Suppose that more fishermen are starting to focus on catching shrimp. What happens to the equilibrium price and quantity for shrimp?

equilibrium price will decrease, but equilibrium quantity will increase

Suppose that minimum wage has increased for workers producing shirts. How will this affect equilibrium price and quantity for shirts?

equilibrium price will increase, but equilibrium quantity will decrease

Microeconomics is the study of

how individual households and firms make decisions.

In the circular-flow diagram,

income payments flow from firms to households, and sales revenue flows from households to firms

If muffins and bagels are substitutes, a higher price for bagels would result in a(n)

increase in the demand for muffins.

An decrease in the price of a good will

increase quantity demanded.

If suppliers expect the price of their product to fall in the future, then they will

increase supply now.

An increase in the number of college scholarships issued by private foundations would

increase the demand for education.

If supply has a perfectly elastic supply, then price elasticity of supply will be

infinite

Prices direct economic activity in a market economy by

influencing the actions of buyers and sellers

One thing economists do to help them understand how the real world works is

make assumptions

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

raise the price of the cinnamon rolls.

Production possibilities frontiers are usually bowed outward. This is because

resources are specialized; that is, some are better at producing particular goods rather than other goods.

Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

shortage to exist and the market price of roses to increase.

A very hot summer in Atlanta will cause

the demand for jackets to decrease.

The scientific method is

the dispassionate development and testing of theories about how the world works

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone to the park.

The two loops in the circular-flow diagram represent

the flows of inputs and outputs and the flow of dollars.

The value of the price elasticity of demand for a good will be relatively large when

the good is a luxury rather than a necessity.

Which of the following firms is most likely to have market power?

the only gasoline station in a rural area

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good

In the simple circular flow diagram, the flow of money from the firms to the markets for factors of production is called

wages, rent, and profit