Micro-econ Final Study Guide

How did the farm population in the United States change between 1950 and today?

It dropped from 10 million to fewer than 3 million people.

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about a. 12.5%. b. 1.2%. c. 0.25%. d. 2%.

a. 12.5%.

In the market for oil in the short run, demand a. and supply are both inelastic. b. is inelastic and supply is elastic. c. is elastic and supply is inelastic. d. and supply are both elastic.

a. and supply are both inelastic.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The change in equilibrium price will be... a. greater in the milk market than in the beef market. b. greater in the beef market than in the milk market. c. the same in the milk and beef markets. d. Any of the above could be correct.

a. greater in the milk market than in the beef market.

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's... a. is positive, and Bethany's is negative. b. approaches infinity, and Bethany's is zero. c. is negative, and Bethany's is positive. d. is zero, and Bethany's approaches infinity.

a. is positive, and Bethany's is negative.

When demand is perfectly inelastic, the price elasticity of demand... a. is zero, and the demand curve is vertical. b. is zero, and the demand curve is horizontal. c. approaches infinity, and the demand curve is vertical. d. approaches infinity, and the demand curve is horizontal.

a. is zero, and the demand curve is vertical.

A movement along the supply curve might be caused by a change in a. the price of the good or service that is being supplied. b. production technology. c. input prices. d. expectations about future prices.

a. the price of the good or service that is being supplied.

Between 1950 and today there was a... a. 30 percent drop in the number of farmers, but farm output more than tripled. b. 70 percent drop in the number of farmers, but farm output increased by about five times. c. 20 percent drop in the number of farmers, but farm output increased by more than ten times. d. 40 percent drop in the number of farmers, but farm output more than doubled.

b. 70 percent drop in the number of farmers, but farm output increased by about five times.

The federal government is concerned about the negative effects of cigarette smoking in the United States. Suppose Congress is considering two plans. One plan would limit the production of cigarettes. The other would require manufacturers to include graphic photos on cigarette packages of people suffering cancer's effects. Which of the following statements is true? a. Both programs would increase the price of cigarettes. b. Both programs would reduce the quantity of cigarettes sold. c. Both programs would decrease revenues for cigarette manufacturers. d. All of the above are correct.

b. Both programs would reduce the quantity of cigarettes sold.

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to... a. increase the total revenue of wheat farmers. b. decrease the total revenue of wheat farmers. c. decrease the demand for wheat. d. decrease the supply of wheat.

b. decrease the total revenue of wheat farmers.

Equilibrium quantity must decrease when demand... a. increases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. b. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. c. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. d. decreases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease.

b. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Portugal has an absolute advantage in the production of... a. toothbrushes and a comparative advantage in the production of toothbrushes. b. hairbrushes and a comparative advantage in the production of hairbrushes. c. hairbrushes and a comparative advantage in the production of toothbrushes. d. toothbrushes and a comparative advantage in the production of hairbrushes.

b. hairbrushes and a comparative advantage in the production of hairbrushes. explanation: Portugal has the absolute advantage in producing hairbrushes because it can make more of those than toothbrushes in the same amount of time. Portugal has the comparative advantage in producing hairbrushes because the opportunity cost of producing one is 1.2 toothbrushes, and the opp. cost of Zimbabwe producing one is 3.33 toothbrushes.

Which of the following statements about agriculture in the U.S. is not correct? a. Technological improvements typically increase supply and decrease revenue for farmers. b. From the 1950s to today, agricultural output has increased about five times. c. Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology. d. Increasing the supply of agricultural products typically benefits consumers but harms farmers.

c. Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology.

When demand is elastic, an increase in price will cause... a. no change in total revenue but an increase in quantity demanded. b. an increase in total revenue. c. a decrease in total revenue. d. no change in total revenue but a decrease in quantity demanded.

c. a decrease in total revenue.

If the demand for a product decreases, then we would expect equilibrium price a. to decrease and equilibrium quantity to increase. b. to increase and equilibrium quantity to decrease. c. and equilibrium quantity to both decrease. d. and equilibrium quantity to both increase.

c. and equilibrium quantity to both decrease.

Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $5 doll in six weeks. Funsters should a. natural advantage. b. trading advantage. c. comparative advantage. d. absolute advantage.

c. comparative advantage.

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be a. unit elastic. b. inelastic. c. elastic. d. None of the above is correct because a price decrease never leads to an increase in total revenue

c. elastic.

When supply is perfectly elastic, the value of the price elasticity of supply is a. greater than 0 and less than 1. b. 1. c. infinity. d. 0.

c. infinity.

When quantity demanded has increased at every price, it might be because a. income has increased, and the good is an inferior good. b. the number of buyers in the market has decreased. c. the price of a complementary good has decreased. d. the costs incurred by sellers producing the good have decreased.

c. the price of a complementary good has decreased.

If the price of a good is low, a. firms would increase profit by increasing output. b. firms can and should raise the price of the product. c. the quantity supplied of the good could be zero. d. the supply curve for the good will shift to the left.

c. the quantity supplied of the good could be zero.

Refer to Table 5-9. Along which of the supply curves does quantity supplied move proportionately more than the price? a. along supply curve B only b. along supply curves B and C c. along all three supply curves d. None. Quantity supplied moves proportionately less than the price along all of the three supply curves.

d. None. Quantity supplied moves proportionately less than the price along all of the three supply curves.

Which of these statements best represents the law of supply? When production technology improves, sellers produce less of the good. b. When sellers' supplies of a good increase, the price of the good increases. c. When input prices increase, sellers produce less of the good. d. When the price of a good decreases, sellers produce less of the good.

d. When the price of a good decreases, sellers produce less of the good.

If a increase in income decreases the demand for a good, then the good is a(n) a. substitute good. b. complementary good. c. normal good. d. inferior good.

d. inferior good.

A key determinant of the price elasticity of supply is the... a. extent to which buyers alter their quantities demanded in response to changes in their incomes. b. extent to which buyers alter their quantities demanded in response to changes in prices. c. number of close substitutes for the good in question. d. length of the time period.

d. length of the time period/ time horizon

When quantity demanded increases at every possible price, the demand curve has a. not shifted; rather, the demand curve has become steeper. b. not shifted; rather, we have moved along the demand curve to a new point on the same curve. c. shifted to the left. d. shifted to the right.

d. shifted to the right.

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction... a. shifts the supply curve of drugs to the left. b. can increase drug-related crime. c. raises prices and total revenue in the drug market. d. shifts the demand curve for drugs to the left.

d. shifts the demand curve for drugs to the left.

Which of the following is not held constant in a supply schedule? a. the prices of inputs b. expectations c. production technology d. the price of the good

d. the price of the good

Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Spain. If we were to do this, measuring cheese along the horizontal axis, then... a. the slope of England's production possibilities frontier would be -2 and the slope of Spain's production possibilities frontier would be -.5. b. the slope of England's production possibilities frontier would be -.75 and the slope of Spain's production possibilities frontier would be -1. c. the slope of England's production possibilities frontier would be -1.5 and the slope of Spain's production possibilities frontier would be -2. d. the slope of England's production possibilities frontier would be -0.67 and the slope of Spain's production possibilities frontier would be -0.5.

d. the slope of England's production possibilities frontier would be -0.67 and the slope of Spain's production possibilities frontier would be -0.5. Explanation: to find the slope of the production possibilities frontier, we will use the change in Y/the change in X. In this case, cheese is on the horizontal axis so this is X, and bread is Y. The possibilities for 24 hrs are shown in the table: England=8/-12=-0.67, Spain=4/-8=-0.5