Intro to Econ Exam #1 (Lehman)

economic theory...

(all of the above answer): -is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clearer in economics -is like a guidebook that it points out what to look for -provides economists with a common language and way of thinking about how the world works -is like a "rule book" that lays out the "rules of the game" of human action but without determining the outcome of the game

when property rights are clearly defined and enforced, private owners will

develop and direct their property toward uses that others value highly because the market will generally reward them for doing so

Which of the following does the law of demand specifically imply?

If the product price increases, quantity demanded will decrease, all else equal

Adam Smith's "invisible hand" principle indicates that competitive markets can help promote the efficient use of resources and the broader general welfare of society

even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use

Which of the following would lead to an increase in the demand for designer blue jeans, all else equal?

an increase in the incomes of youthful blue-jean consumers

Which of the following is a positive economic statement? -an increase in the minimum wage will reduce employment of low-skill workers -the minimum wage should be increased to $18/hour -social justice will be served by increasing the minimum wage -thoughtful people oppose an increase in the minimum wage

an increase in the minimum wage will reduce employment of low-skill workers

If cable TV and streaming TV services are substitutes, then all else equal

an increase in the price of cable TV will increase the demand for streaming TV services

Two different goods are considered substitutes in consumption if

an increase in the price of one leads to an increase in the demand for the other

in economics, human-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as

physical capital goods

the difference between positive economic statements and normative economic statements is that

positive statements are based on facts and are testable, while normative statements are based on opinion and are not testable

If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively

price elastic

If consumer purchases of a good are not very sensitive to the price of the good, economists say the demand for the good is relatively

price inelastic

When economists say that the quantity demanded of a product has decreased, they mean that the

price of the product has risen, and consequently, consumers are buying less of it

middlemen are generally individuals or firms who

provide valued services that reduce the cost of transactions and help achieve additional gains from trade

economics is primarily the study of

the choices that people make as the result of scarcity

Ceteris paribus, the current demand for a good would decrease if

the price of a complementary good rose

in economics the term "utility" refers to

the subjective benefit or satisfaction a person expects to receive from a choice or course of action

the opportunity cost of an action is

the value of the best opportunity that must be sacrificed in order to take the action

to say that people make marginal decisions, or that they "make decisions at the margin," means that

they weigh the additional costs adn additional benefits of various activities before they make a decision

in economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is

transaction costs

which one of the following statements is most clearly inconsistent with the economic way of thinking?

"If the government provides a good free to citizens, then the opportunity cost of the good is zero."

Suppose Katie, Kendra, and Kristen each purchase a particular type of smartphone device at a price of exactly $600. Katie's willingness to pay was $700, Kendra's willingness to pay was $640, and Kristen's willingness to pay was $605. Total consumer surplus for all three individuals is

$145

which of the following could be considered to be a secondary effect (unintended consequence) caused by making drugs such as marijuana, cocaine, heroin and meth illegal?

(all of the above would be considered valid and important secondary effects of making drugs illegal)... -the higher black-market prices that result from making drugs illegal results in more property theft by users who could not otherwise afford the drugs -the usage of scarce police and law enforcement resources to enforce drugl aws leads to less enforcement (and thus a higher amount) of other crimes -without the ability to use the legal system (courts of law) to enforce contracts in these underground markets, violence between buyers and sellers often results when one party to a drug deal does not live up to their end of the bargain, thus the amount of violence in society often increases by making drugs illegal -when supplying the demand for a product that has been decreed illegal by the government, the supplier has no incentive to refrain from other illegal and equally punishable behaviors, thus increasing overall crime by making drugs illegal

Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions?

(all of the above)... -The price to consumers of the good in question will be higher as a result of the restriction, all else equal, meaning consumers will realize less consumer surplus and thereby be worse off -If consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things, ceteris paribus -Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries (a.k.a. the "Lerner symmetry theorem")

which of the following attributes of voluntary trade explain why it is so important for economic prosperity?

(all of the above)... -Trade moves goods from people who value them less to people who value them more -Trade makes it possible to produce a larger output as a result of gains from the division of labor and specialization -Trade makes it possible to produce a larger output as a result of lower per-unit costs that often accompany large-scale production

Suppose that vegetarian and environmental lobby groups run large advertising campaigns that are successful in substantially lowering the consumption of beef. As a result of the substantially lower desire for beef, we would expect

(all of the above)... -price of beef to fall, all else equal -profitability of being a cattle rancher to fall, all else equal a long-run reduction in the number and size of cattle herds, the number of cows, and the amount of land used for cattle ranching, ceteris paribus

private property rights involve

(all of the above)... -the right to exclusive use of the property -legal protection against those who would seek to use or abuse the property without the owner's permission -right to transfer, sell, exchange, or mortgage the property -legal responsibility and liability of the owner NOT to use the property in a way that would impose costs or harm on someone else

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

Harry realized $10,000 of consumer surplus from the purchase of the car

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Sarah has a higher opportunity cost than Harold in terms of the time spent washing and ironing her clothes

What do economists mean when they state that a good is "scarce"?

The amount of the good that people would like exceeds the supply freely available from nature

A cold spell in Florida severely reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains this situation and these events?

The supply of Florida oranges fell due to the freeze, causing their price to increase and the demand for California oranges (a substitute) to increase

All else constant, how will consumers generally react to an increase in the price of butter?

They will substitute other goods like margarine in place of the more expensive butter

Under a system of private property rights, and given typical human life-spans, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to cut for another 50 years into the future?

Yes, the tree farmer will benefit because, as long as the wood from Douglas firs is valued in the marketplace, this action will increase the value of the land if and when the farmer (or his heirs) decide to sell it

the wages of house painters will tend to rise when

alternative earning opportunities for house painters improves

If air travel and bus travel are substitutes in consumption, then all else equal

a decrease in the price of bus travel will decrease the demand for air travel

the law of comparative advantage states that

a group of people can increase their output when each good or service is supplied by the low-opportunity-cost producer

Assume the demand curve for cookies is downward sloping. If the price of a bag of cookies falls from $4.50 to $3.75 per dozen, then ceteris paribus

a large quantity of cookies will be demanded

in a market economy,

a larger income for one person means it is highly likely that others also benefit

The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is

a larger overall output and consumption resulting from a more efficient use of resources

If consumer incomes go up, and we are analyzing the market for Triumph motorcycles (considered a normal good), the effect on the demand for Triumph motorcycles, ceteris paribus, will be

a rightward shift in the demand curve for Triumph motorcycles

the economic way of thinking is

a set of basic concepts that helps one understand human choices and actions under scarcity constraints

which of the following is a positive economic statement

a tax on butter will reduce the quantity of butter bought and sold, all else equal

Because the height of the demand curve measures the marginal value of the good to consumers, the fact that a demand curve slopes downward to the right illustrates that

as more of a product is consumed, consumers will value additional units less

All else equal, producers are willing to offer greater quantities for sale at higher prices because

at higher selling prices the producers have the incentive to bear the increasing opportunity cost of attracting scarce resources from alternative uses

The price elasticity of demand for a good or service is determined primarily by the

availability of close substitutes for the good or service

The number of people willing to buy tickets to the Super Bowl is frequently much greater than the number of tickets (and seats) available. All else equal, this is evidence that the original box-office price of Super Bowl tickets is

below the equilibrium price

Amanda decides to buy a dress that Hillary has for sale; they both agree on a price of $20 for the exchange. Which of the following best describes who gains and who loses from the trade?

both parties expect to gain from this transaction

economic analysis assumes that...

changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior

Two products that are usually consumed jointly would be referred to as

complements

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

consumer surplus

ceteris paribus, an increase in the price of a good will cause the

consumer surplus derived from the good to decrease

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for larger cars and SUVs, causing their prices to rise." These statements

contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand

for the typical college student, taking an introductory course in economics should

help the student learn to rationally analyze and systematically thing about social problems

Other things constant, a decrease in consumer income will

decrease the demand for large-screen television sets considered a normal good

If salsa and nacho chips are considered complements, then ceteris paribus an increase in the price of nacho chips would

decrease the demand for salsa

In a typical college town, when students go home for the summer break, the demand for many items such as pizza and beer

decreases, which is a shift to the left of the demand curves for these goods

The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price is the

demand curve

When economists say the demand for a product has increased, they mean that the

demand curve for the product has shifted to the right

If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a

demand curve that is relatively flat (more horizontal slope)

If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a

demand curve that is relatively steep (more vertical slope)

the economic way of thinking suggests that if the government imposed a $1,000 tax on owners of red

fewer red automobiles would be produced and sold

Of the following goods, which is the most likely to be quite price inelastic?

gasoline

Legislation to protect red-cockaded woodpeckers by making their trees off limits to loggers created incentives that resulted in the widespread cutting and premature harvesting of trees in which these woodpeckers were most likely to nest. This is an example of which of the following pitfalls in economics?

good intentions do not always lead to desirable outcomes; the problem of secondary effects

which of the following is a positive economic statement?

government price controls on rent decreases the number of new apartments constructed

"Jeff Bezos and Amazon have made billions of dollars marketing and selling online consumer retail products. Many workers and consumers must have suffered in order for Bezos and Amazon to amass such enormous wealth." The person who makes this claim

has failed to understand that specialization and voluntary exchange result in mutual economic gain

the production possibilities curve illustrates the basic principle that

if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced

Which of the following is a positive economic statement?

if tax rates at all levels of government exceed 50 percent of national income, job creation will decline, all else constant

the law of demand refers to the

inverse relationship between the price of a good and the quantity demanded

according to adam smith, individual self-interest

is a powerful force for economic progress when iti s directed by competitive markets

the opportunity cost of choosing an alternative

is the value of the highest valued alternative forgone as the result of the choice

if an economy is operating at a point inside the production possibilities curve,

its resources are not being used efficiently

the economizing problem is essentially one of deciding how to make the best use of

limited resources to satisfy virtually unlimited wants

the basic difference between macroeconomics and microeconomics is that...

macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents)

james enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the greater potential for injury it creates by not wearing one in the uncertain event he is in an accident. To an economist, James is

making a rational choice

if consumer tastes are changing more in favor of the consumption of a particular good, then ceteris paribus the

market demand curve for the good would shift to the right

the difference between microeconomics and macroeconomics is that

microeconomics deals with narrowly defined economic units, and macroeconomics focuses on highly aggregated economic markets

when the production possibilities curve is bowed out, this indicates that the resources are

not equally suited to the production of both goods (increasing marginal costs)

Which of the following goods are most likely to be substitutes?

oranges and apples

economists use the term ceteris paribus to indicate that

other things are assumed to be held constant

The city governments of many large metropolitan areas have experimented with purchasing electric scooters to leave around town for everyone's use. Anyone who needs a scooter can rent one by paying a nominal fee with a debit card, and they are not allowed to lock up the scooters or take them home, but rather must leave them available and/or connected to a charger for someone else to use. Economic theory predicts that

people will NOT generally take as good care of these commonly owned scooters as they do their own personal scooters

because information is scarce and costly to acquire,

people will rationally choose not to become 100% fully informed before making decisions

when market prices act as the rationing criterion under scarcity, individuals have a strong incentive to

provide valued services to others in exchange for income in the from of wages, salary, profits, rent, or interest

adam smith believed that if people were free to pursue their own interests,

public interest would be served quite well by voluntary self-interested trading

Because of a late night out with friends, Alyssa decided to sleep in rather than attend her 7:50 a.m. economics class. According to economic analysis, her choice was

rational if Alyssa values the additional sleep more highly than the extra benefit she expects to receive from attending the class

Which of the following will most likely occur under an economic system of clearly defined and enforced private property rights?

resource owners will gain by discovering and employing their resources in ways that are highly valued by others

economic choice and competitive behavior both are a result of

scarcity

If the price of coffee decreases, all else equal the demand curve for tea (a substitute good) will

shift to the left

in a voluntary exchange, if the seller of a product gains,

the buyer must also gain; mutual gain provides the foundation for exchange

the value of a good is

subjective; value is placed on the good according to the "subject" or the buyer or seller

The curve that shows the relationship between the price of a good and the quantity that producers are willing to sell at each price is the

supply curve

Given freedom of movement for both goods and input resources, if Florida producers choose to specialize in oranges and Georgia producers choose to specialize in peaches, then it would be reasonable to conclude that

the Georgia economy has a comparative advantage in producing peaches and the Florida economy has a comparative advantage in producing oranges

when deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare

the additional benefits of the second car with the additional cost of the second car

"The money and resources currently being devoted to preventing and treating the spread of various strands of the coronavirus reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following concepts?

the concepts of scarcity and opportunity cost

goods are scarce because

the desire for goods is far greater than their availability from nature

"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects

the division of labor and the law of comparative advantage

if a good is scarce,

the good will have a price in a market setting

people are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water

a rational decision maker takes an action if, and only if

the marginal benefit of the action exceeds the marginal cost of the action

your professor enjoys his work, teaching economics. He has been offered other positions in the corporate world that would increase his monetary income by as much as 25 percent, but he has decided to continue working as a professor. His decision to continue teaching rather than taking other positions would not change unless

the marginal cost of teaching increased above the marginal benefit