ECON202 Midterm Heath
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially
Through the guiding function of prices and the incentive function of profits
Economic systems differ according to which two main characteristics?
Who owns the factors of production and the methods used to coordinate economic activity
Which of the following exemplifies a microeconomic question?
Will a new type of electronic reader or tablet increase the number of buyers
Which of the following will NOT cause the demand for product K to change?
a change in the price of product K
Which of the following would NOT shift the demand curve for beef?
a reduction in the price of cattle feed
Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:
decrease, quantity demanded will increase, and quantity supplied will decrease.
Refer to the diagram, in which S1 and K1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
demand has increased and equilibrium price has decreased
Private property
encourages owners to maintain or improve their property so as to preserve or enhance value
An increase in the consumer desire for strawberries is most likely to:
increase the number of strawberry pickers needed by farmers
Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. If the consumer spent all of her budget on just apples or just bananas, how many apples or bananas maximum would she be able to buy?
8 apples or 16 bananas
Which of the following statements is correct?
If supply increases and demand decreases, equilibrium price will fall.
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially
In ways that minimize the cost per unit of output
In the simple circular flow model:
businesses are sellers of final products
Resource Resource Price #1 #2 #3 #4 #5 Land 4 2 4 2 4 4 Labor 3 1 2 4 1 3 Capital 3 5 2 3 1 2 Entr. Abil 2 3 1 1 4 1 In view of the indicated resource prices, the economically most efficient production technique(s) are:
#2 and #4 (Add Resource values for each Possibility and choose the lowest possibility)
The role of an assumption in an economic theory is to
Simplify the complexity reality
What is a major opportunity cost of going to college on a full-time basis?
The foregone income that could be earned working full-time
As a consequence of the problem of scarcity
individuals have to make choices from among alternatives
The use of money contributes to economic efficiency because:
it promotes specialization by overcoming the problems with barter
The law of demand states that, other things equal
price and quantity demanded are inversely related
If the supply and demand curves for a product both decrease, then equilibrium
quantity must decline, but equilibrium price may rise, fall, or remain unchanged.
Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5 both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to
raise their price and increase their quantity supplied
The basic truth that underlies the study of economics is the fact that we all face
scarcity
Typical Characteristics of the Market System:
*Private Property *Freedom of Enterprise *Competition in product and resource markets
Which of the following is a normative economic statement:
*The government needs to revamp the Social Security program to make it sustainable *The poverty rate hit a new high last year and income distribution also worsened (worsened makes it normative)
The Five Fundamental Questions:
1.) What goods will be produced? 2.) How will the goods be produced? 3.) Who will get the goods? 4.) How will the system accommodate change? 5.) How will the system promote progress?
Economics is a social science that studies how individuals, institutions, and society may
Best use resources to maximize satisfaction of economic wants
Matt observes that "there is a high correlation between educational attainment and the level of income." Head concurs and adds that "high school graduates should all proceed to college."
Matt's statement is positive while Jean's statement is normative
Distinguishing feature of laissez-faire
Minimal Government intervention Hypothetical market system
A surplus of a product will arise when price is
above equilibrium, with the result that quantity supplied exceeds quantity demanded
Two major virtues of the market system are that it:
allocates resources efficiently and allows economic freedom
An increase in the price of a product will reduce the amount of it purchased because
consumers will substitute other products for the one whose price has risen
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the prices of resources used to produce X will:
decrease S, increase P, and decrease Q
When the price of a product increases, a consumer is able to buy less o it with a given money income. This describes the
income effect
In the following question you are asked to determine, other things equal, the effects a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a close substitute for X will:
increase D, increase P, and Increase Q
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):
increase in the price of complementary good Y
When studying human behavior, economists assume rational self-interest. This means
people make decisions based on some desired outcome
Graphically, the market demand curve is
the horizontal sum of individual demand curves
The production possibilities curve is a graph of:
the maximum combinations of products that can be produced
If there is a shortage of product X, and the price if free to change
the price of the product will rise
A product market is in equilibrium
where the demand and supply curves intersect