Macro 1

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). First, increase the production of shelter along the PPC; then continue to shift more and more production to shelter. Which of the following will most likely happen to the opportunity cost of a unit of shelter?

Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce an additional unit of shelter.

Which of the following decreases supply in the market for pizza?

Pizza shop employees successfully organize a union and negotiate a pay increase

In moving from a shortage toward the market equilibrium, which of the following is true?

Price rises

Opportunity cost

Represents the best alternative sacrificed for a chosen alternative.

Assume no price ceiling exists in a market. Then a price ceiling is established below the market equilibrium. What would result?

Shortage

Suppose Big-Cat and Fat-Cat are rival cat food brands and the price of Fat-Cat is reduced. Following this price drop, is there a shortage or a surplus of Big-Cat at the old price of Big-Cat?

Suplus

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). Suppose a technological innovation resulted in a new, higher-yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources. If this innovation did not affect the productivity of shelter production, which of the following would be true?

The PPC will rotate outward along the food axis, but will not shift on the shelter axis

Suppose an economy can produce various combinations of fish and bread. If people become more proficient in fishing, how would the production possibilities curve (PPC) change?

The PPC would shift outward on the fish axis, but would not change on the bread axis

Suppose the city of Arcata, California, imposes rent control so that rents cannot exceed $1,000 per month on one-bedroom rental units. Suppose $1,000 had also been the equilibrium rental price in Arcata before a huge new apartment complex was built in the nearby town of McKinleyville, where rents are $800 per month. Which of the following is most likely true?

The equilibrium rental price in Arcata will fall below $1k; thus, rent control will not affect the rental market in Arcata

Producer surplus measures the value between the actual selling price and the

The price sellers are willing to sell the product

Suppose the average equilibrium monthly rental price of apartments and rooms in a college town has been steady at $600, but then the college expands enrollment from 10,000 to 12,000. Suddenly, there is a shortage of rental housing at the prevailing price of $600. Which of the following is most likely true?

The shortage occurred because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market

Suppose the state of California imposes a minimum wage of $15 per hour. In the entry level labor market in California fast-food restaurants, the quantity of labor demanded at $15 per hour is 800,000 and the quantity of labor supplied is 1.2 million. Which of the following is true?

There is a surplus of 400k workers in the labor market

Suppose the federal government imposes a price floor (support price) in the milk market at a price of $6 per gallon. If market quantity demanded at $6 is 1 billion gallons, and market quantity supplied is 1.5 billion gallons, which of the following is true?

There is a surplus of 500 million gallons of milk, and the federal government will buy these 500 million gallons to maintain the $6 price

Which of the following would eliminate scarcity as an economic problem?

There really is no answer

Which of the following is true about renewable natural resources?

They are a type of land resource (ex. forests, marine fisheries, rangelands) that naturally regenerate and thus can tolerate a sustained harvest but can be depleted from excessive harvest.

Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics?

They are not attainable given our existing stock of resources and technology

Suppose the alternative uses of an hour of your time in the evening, ranked from best to worst, are (1) study economics, (2) watch two half-hour sitcoms, (3) play video games, and (4) jog around town. You can choose only one activity. What is the opportunity cost of studying economics for one hour given this information?

Watching two half-hour TV sitcoms

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter.

Which of the following is not one of the three fundamental economic questions?

What happens when you add to or subtract from a current situation

Which of the following best describes the three fundamental economic questions?

What to produce, how to produce, and for whom to produce

Under the law of demand, any increase in price will cause _____________ in quantity demanded.

a decrease

Which of the following causes a shortage to become larger?

a decrease in price

With an upward-sloping supply curve, which of the following is true?

a decrease in price results in a decrease in quantity supplied

Consumer surplus measures the value between the price consumers are willing to pay and the

actual price paid

A production possibilities curve shows the various combinations of two outputs that

an economy can produce

Which of the following would not cause market demand for a normal good to decline?

an increase in the price of a substitute

Deadweight loss is the result of

an inefficient market

The law of demand is the principle that there is _________________ relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.

an inverse

An increase in supply

appears as a rightward shift of the supply curve

Which of the following reasons could explain why an economy would be operating inside its production possibilities curve (PPC)?

because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

Suppose X and Y are substitutes. If the price of Y increases, how will this change the market equilibrium for X?

both equilibrium price and quantity will rise

Deadweight loss is the net loss of

consumer surplus and producer surplus

As shown in Exhibit A-7, if the quantity supplied is 2 million pounds of ground beef per year, what is the result?

deadweight loss

As shown in Exhibit A-7, if the quantity supplied is 6 million pounds of ground beef per year, what is the result?

deadweight loss

A leftward shift in the demand curve is called a(an)

decrease in demand

An increased equilibrium price and a decreased equilibrium quantity results from a(an)

decrease in supply

A decrease in demand with the supply held constant leads to a(an)

decreased equilibrium price and a decreased equilibrium quantity

Which of the following is true in ski towns such as Crested Butte, Colorado, and Whistler, British Columbia during the peak winter ski season as compared to May and June?

demand for motel rooms is higher

The law of supply is the principle that the relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus, is

direct

The ability of an economy to produce greater levels of output per time period is called

economic growth

Which of the following is not an example of market failure?

efficient equilibrium

In Exhibit 14, if the price of video games was currently $45, there would be an __________ of __________ video games in this market.

excess demand- 100

In Exhibit 14, at any market price of video games below $50, a(n) __________ would result, causing price to __________.

excess demand; rise

Exhibit 14 presents supply and demand data for the video game market. If the price of video games was currently $70, there would be an _________ of ___________ video games in this market.

excess supply- 400

In Exhibit 14, at any market price of video games above $50, a(n) __________ would result, causing price to __________.

excess supply; fall

There is news that the price of Tucker's Root Beer will increase significantly next week. If the demand for Tucker's Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in

expectations

A rightward shift in the demand curve is called a(an)

increase in demand

If the quantity demanded exceeds the quantity supplied in a market, what is the result?

inefficiency

Because of scarcity

it is impossible to satisfy every desire and choices must be made

The branch of economics that studies decision making for the economy as a whole is known as:

macroeconomics

A curve that is derived by summing horizontally individual supply curves is called

market supply

Which words best complete the following sentence? A rational decision maker always chooses the option for which marginal benefit is _____________ marginal cost.

more than

An increase in the quantity demanded for any good or service is reflected graphically as

movement down along the demand curve

A cost imposed on people other than the consumers and producers of a good or service is a

negative externalities

If the quantity supplied exceeds the quantity demanded in a market, what is the result?

overproduction

Which of the following is a type of economic analysis?

positive

Which word or phrase best completes the following sentence? Marginal analysis means evaluating _____________ changes from a current situation

positive or negative

A surplus occurs when

price is above equilibrium

A shortage occurs when

price is below the equilibrium price

If the cost of producing a good rises for sellers, how will this affect the market equilibrium for that good?

price will rise, and quantity will fall

Which of the following represents causality rather than association?

quantity demanded goes up when price falls because lower prices increase consumer purchasing power and because some consumers of substitute goods switch.

Which of the following is not a type of economic analysis?

resources

Which resource is not an example of capital?

stocks and bonds

In the study of economics, investment means

the accumulation of capital that is used to produce goods and services

A change in the quantity demanded for any good or service is caused by a change in

the price of that good or service

Deadweight loss results from

underproduction and overproduction

In an efficient market, deadweight loss is

zero

Suppose a consumer is willing to pay $20 for one good X, $10 for a second, and $5 for a third, and the market price is $4. What is the consumer surplus?

$23

Suppose seller X is willing to sell one good X for $5, a second good X for $10, a third for $16, a fourth for $25, and the market price is $20. What is seller X's producer surplus?

$29

Suppose Tucker Inc. is willing to sell one gizmo for $10, a second gizmo for $15, a third for $20, and the market price is $25. What is Tucker Inc.'s producer surplus?

$30

In Exhibit 14, if there is a shortage of video games of 200 units, the current price of video games must be

$40

If Sam is willing to pay $50 for one good X, $30 for a second, $20 for a third, $8 for a fourth, and the market price is $10. What is Sam's consumer surplus?

$70

If a price ceiling is set at $10, and the equilibrium market price is $8, which price will consumers actually pay?

$8

The condition of scarcity

- cannot be eliminated - prevails in poor economies - prevails in rich economies

Which of the following are factors of productions?

- land (natural resources) - labor (human capital, entrepreneurship) - capital (constructed inputs such as factories)

Which of the following careers could result from majoring in economics?

- management - banking - government

Which of the following illustrates the concept of scarcity

- more clean air is wanted than is available in large polluted metropolitan areas such as Mexico City - There is usually more than one use of your "free" time in the evening - There are many competing uses for the annua, budget of your city, county, or state

Which of the following is an example of an organization using marginal analysis?

A government official considering the effect an increase in military goods production will have on the production of consumer goods.

Which of the following best illustrates the application of the model-building process to economics?

A labor economist notices that unemployment tends to be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypotheses in the model.

Which of the following best describes an entrepreneur?

A person who combines the factors of production to produce innovative products

Which of the following is not an example of a capital input?

A person's skills and abilities, which can be employed to produce valuable goods and services (this is considered labor)

As shown in Exhibit A-7, if the market is in equilibrium, _______ represents consumer surplus.

AEC

Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?

An increase in the demand for vacations at resorts on Caribbean islands

Which of the following causes the demand for veggie burgers to increase?

An increase in the price of tofu burgers, perceived as a substitute by veggie burger consumers

As shown in Exhibit A-7, if the quantity supplied is 2 million pounds of ground beef per year, the result is a deadweight loss represented by area

BEF

If goods A and B are complements, and the price of good B rises, how will this affect the market equilibrium for good A?

Both price and quantity will fall

As shown in Exhibit A-7, if the market is in equilibrium, ______ represents producer surplus.

CED

Which of the following is the last step in the model-building process?

Collect data and test the model

Which of the following is the second step in the model-building process?

Develop a model based on simplified assumptions

Which of the following is the best definitions of economics?

Economics is the study of how society chooses to allocate its scarce resources

Suppose the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a surplus. Which of the following causes a reduction in the surplus of wheat?

Elimination of the price floor

Which of the following increases the supply of corn?

Farmers who grow soybeans can also grow corn, and the price of soybeans drops by 75%

If a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?

Greater emphasis on the production of capital today leads to greater outwards shifts in the PPC, thus increasing the standard of living of people in the future

Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the production possibilities curve (PPC)?

Greater production of capital goods that what is needed to replace worn-out capital

Which of the following represents positive economics?

If policy X is followed, then outcome Y results

Which of the following describes the ceteris paribus assumption

If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant

Which word indicates that an economist is using positive economics?

If-then

Low-income families consume proportionately more of which of the following kinds of goods?

Inferior goods

The principle that the opportunity cost increases as the production of one output expands is the

Laws of increasing opportunity costs

If society allows firms to freely pollute the environment, which of the following is true?

Market equilibrium output will be too high relative to the efficient output level