Exam 1

Total output in an economy increases when each person specializes because:

each person spends more time producing that product in which he or she has a comparative advantage

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is:

$42,600

When can two countries gain from trading two goods?

- when the first country is better at producing both goods and the second country is worse at producing both goods - when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost - when the first country can only produce the first good and the second country can only produce the second good

In a competitive market, the price of a product______________:

-and the quantity of the product produced are both determined by sellers -is determined by buyers, and the quantity of the product produced is determined by sellers -is determined by sellers, and the quantity of the product produced is determined by buyers ( Correct ) No answer stated is correct

What would happen to the equilibrium price and quantity of Diet Coke if consumers' incomes rise and Diet Coke is a normal good?

Both the equilibrium price and quantity would increase

If consumers view Diet Pepsi and Diet Coke as substitutes, what would happen to the equilibrium price and quantity of Diet Coke if the price of Diet Pepsi rises?

Both the equilibrium price and quantity would increase.

Which of the following statements is correct?

Buyers determine demand, and sellers determine supply

Suppose there is a flood in Atlanta, Georgia, that destroys several Diet Coke bottling facilities. In the market for Diet Coke, which of the following would not be a direct result of this event?

Buyers would not be willing to buy as much as before at each relevant price

When society gets the most it can from its scarce resources, then the outcome is called:

Efficient

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

The principle of comparative advantage does not provide answers to certain questions. One of those questions is:

How are the gains from trade shared among the parties to a trade?

The principle that "people face tradeoffs" applies to

Individuals Societies ( Correct! )All of the other stated answers are correct Families

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this best illustrate?

People respond to incentives

Which of the following is an example of a positive statement?

Prices rise when the government prints too much money

When a society cannot produce all the goods and services people wish to have, the economy is experiencing

Scarcity

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour

Susan has a comparative advantage over Paul in washing windows Paul has a comparative advantage over Susan in ironing shirts Susan has an absolute advantage over Paul in washing windows ( Correct ) All other answers stated are correct

Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes?

The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity

What would happen to the equilibrium price and quantity of Diet Cokes if the manufacturers began using a machine that reduced the amount of labor necessary to produce them?

The equilibrium price would decrease, and the equilibrium quantity would increase

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is:

This cannot be determined from the information given

Which of the following demonstrates the law of supply?

When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup

Which of the following statements about trade is false?

With trade, one country wins and one country loses

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide

Bonus questions will be worth two points that will be added to your score at a later time.

and equilibrium quantity to both decrease

Economic models

are simplifications of reality, and in this respect economic models are no different from other scientific models

Suppose you make golden jewelry. If the price of gold falls, then we would expect you to:

be willing and able to produce more jewelry than before at each possible price

Specialization and trade are most closely linked to:

comparative advantage

Suppose buyers of computers and printers regard the two goods as complements. Then an increase in the price of computers will cause a(n):

decrease in the demand for printers and a decrease in the quantity supplied of printers.

The law of demand states that, other things equal, when the price of a good:

falls, the quantity demanded of the good rises

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good:

has an absolute advantage in the production of that good

For a competitive market:

if a seller charges more than the going price, buyers will go elsewhere to make their purchases

Trade between countries tends to:

increase both competition and specialization

An increase in the price of a good will:

increase in quantity supplied

A group of buyers and sellers of a particular good or service is called a(n):

market

A competitive market is a market in which:

no individual buyer or seller has any significant impact on the market price

Economists view normative statements as

prescriptive, making a claim about how the world should be.

An increase in quantity demanded:

results in a movement downward and to the right along a demand curve.

The quantity supplied of a good is the amount that:

sellers are willing and able to sell

The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then the:

supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the:

supply of flour to increase

Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a:

surplus to exist and the market price of chocolate-dipped strawberries to decrease

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates:

the ticket price is below the equilibrium price

If there is a shortage of farm laborers, we would expect:

the wage of farm laborers to increase

If an economy is producing efficiently, then:

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

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that:

they would do better charging $15 than $10.