MICRO EXAM 1 Review

Which of the following should be held constant when calculating an income elasticity of demand?

- the price of the good -prices of related goods -tastes

Rent control

-is an example of a price ceiling -leads to a larger shortage of apartments in the long run than in the short run. -leads to lower rents and, in the long run, to lower-quality housing

To say that a price ceiling is binding is to say that the price ceiling

-results in a shortage. -is set below the equilibrium price -causes quantity demanded to exceed quantity supplied

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? a. 0 b. 0.4 c. 1 d. 4

4

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

48 percent increase in the quantity demanded.

Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding

A decrease in the price of unsliced bread, which people consider a substitute for sliced bread.

If the demand curve is linear and downward sloping, which of the following statements is not correct?

Demand is more elastic on the lower part of the demand curve than the upper part.

Assume Leo buys coffee beans in a competitive market. It follows that

Leo cannot influence the price of coffee beans even if he buys a large quantity of them.

If Mike can produce more donuts in one day than Sue can produce in one day, then

Mike has an absolute advantage in the production of donuts

Which of the following events could shift the demand curve for gasoline to the left?

Public service announcements run on television encourage people to walk or ride bicycles instead of driving cars

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

The effect of changes in money supply on the inflation rate

When demand is inelastic, a decrease in price will cause

a decrease in total revenue

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

Which of the following is an example of a normative, as opposed to a positive, statement? a. The social security system is a good system and it deserves to be preserved as it is. b. A decrease in the minimum wage would decrease unemployment. c. The elimination of trade restrictions would increase an economy's standard of living. d. Following the most recent recession, the economy is recovery is recovering at a slower than usual pace.

a. The social security system is a good system and it deserves to be preserved as it is.

Suppose the demand is inelastic within a certain price range. For that price range,

an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price.

When a tax is placed on the buyers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease

Which of the following statements about models is correct? a. Economic models are built to mirror reality exactly. b. A model can be accurately described as a simplification of reality. c. Models cannot be used to explain how the economy functions. d. Economic models are usually plastic representations of the economy.

b. A model can be accurately described as a simplification of reality.

The quantity sold in a market will decrease if the government decreases a

binding price ceiling in that market.

A market includes

both buyers and sellers

In a market economy, supply and demand determine

both the quantity of each good produced and the price at which it is sold

Policymakers use taxes

both to raise revenue for public purposes and to influence market incomes

A tax on the buyers of personal computer external hard drives encourages

buyers to demand a smaller quantity at every price

A legal maximum on the price at which a good can be sold is called a price..

ceiling

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume

Equilibrium quantity must decrease when demand

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

The minimum wage

does not apply to unpaid internships.

When the price of peaches changes, the demand curve for peaches

does not shift because the price of peaches is measured on the vertical axis of the graph

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to

fall now

By definition, exports are

goods produced domestically and sold abroad

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?

greater in the milk market than in the beef market.

The price received by sellers in a market will increase if the government

increases a binding price ceiling in the market.

Two goods are complements when a decrease in the price of one good

increases the demand for the other good

You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are an

inferior good

For a self-sufficient producer, the production possibilities frontier

is the same as the consumption possibilities frontier.

One disadvantage of government subsidies over price controls is that subsidies

make higher taxes necessary

A group of buyers and sellers of a particular good or service is call an

market

Which of the following expressions represents a cross-price elasticity of demand?

percentage change in quantity demanded of bread divided by percentage change in price of butter

Normative statements are

prescriptive, whereas positive statements are descriptive.

a demand schedule is a table that shows the relationship between

price and quantity demanded

A professor spends 8 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and paper written per day) is called his

production possibilites frontier

When an economist points out that you and millions of other people are interdependent , she is referring to the fact that we all..

rely upon one another for the goods and services we consume.

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

rises, the quantity supplied of the good rises

The price elasticity of supply measures how responsive

sellers are to a change in price.

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

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

supply is more elastic at low levels of output and less elastic at high levels of output.

When a supply curve is relatively flat, the

supply is relatively elastic

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.

A rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action

The minimum wage has its greatest impact on the market for

teenage labor

When a relevant variable that is not named on either axis changes,

the curve will shift

When computing the opportunity cost of attending a professional football game as a spectator, you should include

the price you pay for the ticket and the value of your time.

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

The supply of a good or service is determined by

those who sell the good or service

The opportunity cost of an item is

what you give up to get that item

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

zero