Exam 1 - Chapters 1-4
Which explains how the OPEC crisis of 1973 affected oil prices?
The supply of oil was reduced, leading to a rise in oil prices.
trade creates value because:
goods are moved from those who value them less to those who value them more; people exchange things they do not want for things they do
The law of demand suggests a relationship between price and .
negative; quantity demanded
Demand slopes down because:
consumers will choose to use goods only in their most valuable uses when prices are high
What would lead to a decrease in supply?
costs of producing output have increased.
The market price of a good is $5 and 40 units of the good sell at this price. Its demand curve intersects the vertical axis at a price of $10 and has a constant slope. What is the approximate value of consumer surplus in the market?
$100
The market price of a good is $10 and 40 units of the good sell at this price. Its supply curve intersects the vertical axis at a price of $8 and has a constant slope. What is the approximate value of producer surplus in this market?
$40
If the university president valued a parking space close to the administration building at $500 and paid $30 for a parking permit, he would receive consumer surplus equal to:
$470
Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is:
$7
Calculate the amount of producer surplus earned in this market if the price is $60. P: 60 Q: 40 Supply: 20
$800
Refer to the table below. What is the total amount of producer surplus (per barrel of oil) earned if the market price per barrel of oil is $51? country. min, willingness to sell country a. $32 country b. $16 country c. $17.25 country d. $56.99
$87.75
Which of the following choices contains only factors that cause the supply curve to shift to the right? (a) a rise in technology, a fall in the costs of production, a fall in taxes on output (b) a fall in production costs, a rise in technology, an increase in taxes on output (c) an increase in tastes and preferences for the product, economic growth, and a rise in technology (d) a decrease in taxes on production, a fall in subsidies on production, a rise in costs of production
(a) a rise in technology, a fall in the costs of production, a fall in taxes on output
Which variable is NOT a demand shifter? (a) tastes and preferences (b) price of raw materials (c) price of substitutes (d) price of complements
(b) price of raw materials
Which choice explains how the OPEC crisis of 1973 affected oil prices? (a) The demand for oil decreased, leading to a fall in oil prices. (b) The supply of oil was increased, leading to a fall in oil prices. (c) The supply of oil was reduced, leading to a rise in oil prices. (d) The demand for oil increased, leading to a rise in oil prices.
(c) The supply of oil was reduced, leading to a rise in oil prices.
Refer to the table below regarding production possibilities for the following four questions. Italy linen: 4 Pasta: 10 Belgium linen: 20 Pasta: 5 The opportunity cost of 1 linen for Belgium is:
.25 pastas
Refer to the table below regarding production possibilities for the following four questions. Italy linen: 4 Pasta: 10 Belgium linen: 20 Pasta: 5 The opportunity cost of 1 pasta for Italy is:
.4 linens
Refer to the table below regarding production possibilities for the following four questions. Italy linen: 4 Pasta: 10 Belgium linen: 20 Pasta: 5 What is a possible rate of trade between Italy and Belgium?
4 linens < 1 pasta < 4 linens
The Wonderful Widget Company is trying to increase the market price. What is one strategy it can use?
Advertise or change the produce to make it more desirable.
In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:
Colombia has an absolute advantage in the production of coffee.
The United Nations estimates that Earth's population growth rate will slow down by the year 2050 at which time population may start to decrease. If technological change allows the supply of oil to increase at a constant rate, and nothing else changes, what effect will a slowdown in population growth have on the price of oil?
Demand will increase more slowly during this period but since supply is growing at a constant rate, the rate of price increase will fall, and ultimately the price of oil may begin to fall.
Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two good?
One person can have an absolute advantage in both goods but not a comparative advantage in both goods.
Assume that the United States could produce 80 million loaves of bread if all its resources were devoted to bread production. If it used all its resources to produce milk, suppose it could produce 80 million gallons of milk. If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. Alternatively, if all its resources were used to produce milk, Germany could produce 20 million gallons of milk. Which of the following statements is true?
The United States has an absolute advantage in producing both goods.
The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market?
The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity.
Suppose it is widely believed that the price of flat-screen, high-definition televisions will be lower next year. What will happen as a result of such beliefs?
The demand for flat-screen TVs will decrease now.
Which statement most accurately explains the upward trend in the market price of oil from 2000-2008?
The demand for oil has increased faster that the supply of oil has increased.
Which statement most accurately explains the upward trend in the market price of oil in the 2000's?
The demand for oil increased faster than the supply of oil increased.
An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?
The equilibrium price decreases; the change in the equilibrium quantity is uncertain.
Assume the demand schedule for MP3 Players is downward sloping. If the price of MP3 players increases from $100 to $150:
a decrease in quantity demanded will occur
A decrease in demand refers to:
a leftward shift of the demand curve.
the slope of the production possibilities frontier at ag even point indicates:
a country's opportunity cost of production
which of the following best describes the principle of comparative advantage? a. someone has the ability to produce the same good for the lowest opportunity cost b. someone has the ability to produce the same good using fewer inputs than another producer c. to produce more of one good, people have to produce less of another good d. some people can produce the same good better than other producers can
a. someone has the ability to produce the same good for the lowest opportunity cost
which of the following is NOT true regarding the production possibilities frontier (PPF)? a. the PPF shows that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production b. the PPF illustrates the fundamental ideas of scarcity and opportunity cost c. the PPF shows the combination of goods that a country can produce given its current productivity and supply of resources d. the PPF illustrates the trade-offs that exist in the production of goods
a. the PPF shows that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production
the ability of one producer to produce one good or service using fewer inputs (or, more efficiently) then another producer is:
absolute advantage
Suppose it is discovered that consumption of butter leads to a longer life. This information would lead to:
an increase in demand
The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is:
below the equilibrium price.
When the price of a good increases, demand for the good will:
be unaffected.
What can cause both equilibrium price and quantity to increase?
consumer tastes becoming more favorable toward the go
If labor in China is less productive than labor in the United States in all areas of production, then:
both the United States and China can benefit from trade.
Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:
competition among buyers will increase the current price.
Imagine that millions of refugees move out of country A and into country X. This would cause the demand for housing in country A to and the demand for housing in country X to . (a) decrease; decrease (b) decrease; increase (c) increase;increase (d) increase; decrease
decrease; increase
Consider the market for ramen noodles, an inferior good. Simultaneously, a recession hits (decreasing consumer income) and many new producers of ramen noodles enter the market. As a result,
equilibrium quantity will rise and the change in equilibrium price will be ambiguous.
The supply curve:
illustrates the quantity supplied at different prices.
If the price of computers , the price for printers will .
increases; decrease
If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. If it used all its resources to produce milk, it could produce 20 million gallons of milk. Then Germany's opportunity cost of producing a __________ is ___________.
loaf of bread; 1/2 gallon of milk
Consider the (world) market supply for oil. Saudi oil production inhabits the , and the Canadian oil production inhabits the part of the curve.
lower; upper
Each point along a production possibilities curve represents:
maximum output given the state of technology and resource availability
You normally stay at home on Wednesday nights and study. However, next Wednesday night the college is having a free concert on the main campus. You have to make a choice. This is an example of:
opportunity costs
Refer to the table below regarding production possibilities for the following four questions. Italy linen: 4 Pasta: 10 Belgium linen: 20 Pasta: 5 Italy has a comparative advantage in:
pasta, while Belgium has a comparative advantage in linen.
The key condition for equilibrium to occur in a market is:
quantity demanded equals quantity supplied.
The quantity supplied is the quantity that:
sellers are willing and able to sell at a given price.
Opportunity cost is shown on a PPF by the:
slope of the PPF at any point
the enormous variety of goods and services that we consume each day can be attributes mainly to:
specialization and trade
The equilibrium price is:
stable because at this price quantity demanded equals quantity supplied
Traders should specialize in the good that:
that they can produce with the lowest opportunity cost.
On a graph of a demand curve, total consumer surplus equals:
the area beneath the demand curve and above the market price
The production possibility frontier shows:
the combinations of output that an economy can produce given its productivity and supply of inputs.
If sellers want to sell more products than buyers are willing to purchase, we know that:
the current price is greater than the equilibrium price.
When nations specialize according to their comparative advantage: (a) total world production rises but total consumption in the world declines. (b) total production and consumption in the world increase. (c) consumption rises in one country but must fall in all others. (d) None of the answers is correct.
total production and consumption in the world increase.
The table below shows the number of hours Paul spends either reading books or watching movies. Paul only has 10 hours to use on the activities. If Paul decides to go from spending two hours reading books to four hours, what is his opportunity cost for watching movies? books: 0. 2. 4. 6. 8. 10. movies: 10. 8. 6. 4. 2. 0.
two hours of movie watching