Micro Exam
Increased demand for a limited supply of antiques has resulted in which of the following?
An increase in the price of antiques
(Last Word) Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be
more elastic than the demand for the original software.
Which of the following would best be classified as a complement for new houses/homes?
mortgage loans
Total revenue is calculated by (multiplying/dividing) the product price by the quantity sold.
multiplying
Total revenue is calculated by________ (multiplying/dividing) the product price by the quantity sold.
multiplying
The total revenue received by sellers of a good is computed by
multiplying the price times the quantity sold.
Any good for which more is demanded as income rises is a(n) ______ good.
normal
If the income elasticity coefficient is positive, then the good is a ______ good.
normal
The invisible hand refers to the
notion that, under competition, decisions motivated by self-interest promote the social interest.
Another way of saying "ceteris paribus" is
other things equal
The Latin term "ceteris paribus" means
other things equal
When the price elasticity coefficient is equal to infinity, the product exhibits ______ demand.
perfectly elastic
Scarcity
persists because economic wants exceed available resources.
The coordination problem in the centrally planned economies refers to the idea that
planners had to direct required inputs to each enterprise.
The proportion of consumers' incomes allocated to a particular good or service is a determinant of ______.
price elasticity of demand
If the marginal benefit of a good is less than its marginal cost, then the nation should
reduce the production of that good.
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
relatively price elastic.
If the quantity supplied by producers is relatively insensitive to price changes, supply is ______.
relatively price inelastic
In the circular flow model, households earn their incomes in the
resource markets.
The simple circular flow model shows that workers and capital owners offer their services to firms through the
resource markets.
For policymakers to achieve the goal of higher total farm incomes, farm output must be ______.
restricted
Specialization in production is important primarily because it
results in greater total output.
Households and businesses are
sellers in the resource and product markets respectively.
The _______ run is a period of time that is not long enough to change plant capacity.
short
The ________ run is a period of time that is not long enough to change plant capacity.
short
In the ______, a farmer would have time to cultivate a crop more intensively by applying more variable inputs, such as labor, fertilizer, and pesticides.
short run
If the equation y = 15 − 4x was plotted, the
slope would be −4.
A society can consume a combination of goods outside its production possibilities if there is
specialization in production and International trade.
Larger positive cross elasticity implies greater ______ between two products.
substitutability
If the cross-price elasticity of demand between two goods is positive, then the pair must be ______.
substitutes
The distinction between microeconomics and macroeconomics is
that microeconomics studies the behavior of individual consumers, workers, and firms, while macroeconomics studies the economy as a whole.
The circular flow model illustrates
the interdependence of businesses and consumers.
The economizing problem is
the need to make choices because economic wants exceed economic means.
Competition means that
there are independently acting buyers and sellers in each market.
The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that
there are more substitutes for Cheerios than for cereals as a whole.
The total revenue received by sellers of a good is the same amount as the
total amount spent on the good by the buyers.
For all down-sloping demand curves, the price elasticity of demand is more elastic ______.
toward the upper left
Capitalism gets its name from the fact that capital resources are mostly
treated as private property.
True or false: When an increase in the price of one good decreases the demand for another good, the goods are called complementary goods.
true
True or false: When considering the price elasticity of supply, price and total revenue always move together.
true
How many products (goods and services) are considered when referring to the cross elasticity of demand formula?
two
If the loss in revenue from a lower price is exactly offset by the gain in revenue from the increase in sales, then the price elasticity of demand is ______.
unit elastic
Why will the coefficient for the price elasticity of demand always be a negative number?
Because price and quantity demanded are inversely related
How is a buyer's responsiveness to price changes measured?
By the price elasticity of demand coefficient
Digital cameras and memory sticks are what type of goods?
Complementary
(Consider This) In markets entered by Southwest Airlines, gains in passenger traffic and profits
went almost entirely to Southwest
The optimal allocation of resources is found
where MB = MC.
Economic systems differ according to which two main characteristics?
who owns the factors of production and the methods used to coordinate economic activity
The inelastic nature of farm products means that the increased output brought about by a good growing season results in which of the following?
Depressed total revenue Decreased prices
Which of the following would be considered a luxury and thus exhibit a high price elasticity of demand?
Dining out
Which of the following would be considered a necessity and thus have a low price elasticity of demand?
Electricity
An economic system in which money is not used as a medium of exchange is a
barter economy.
According to the circular flow model, product markets are where
businesses earn their revenues from households.
"Consumer sovereignty" means that
buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.
The market system is also known as ___, while the command system is also known as _____.
capitalism; socialism
(Last Word) Which of the following is not an example of pricing based on group differences in elasticity of demand?
cash rebates for purchases of automobiles
One major element of the command system is
central planning conducted by the government.
(Last Word) Based on the concept of price elasticity of demand, which of the following cases is most likely to occur?
colleges charging lower tuition for low-income students
Specialization and international trade allow a nation to
consume a combination of goods that is beyond (or outside) its production possibilities.
The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of
consumer sovereignty.
The term dollar votes in a market system means
consumers "vote" for certain products to be produced by how they spend their incomes.
If a nation restricts trade with other nations, then the most likely effect is
consumers in the nation are made worse off.
"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the
coordination problem under central planning.
The percentage change in quantity demanded of good X divided by the percentage change in the price of product Y is known as the ______.
cross elasticity of demand
Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would
decrease because the demand is price-inelastic.
The formula for the cross elasticity of demand is written as the percentage change in the quantity demanded of one product _________ by the percentage change in the price of another product.
divided
Product ______ should be considered when discussing time as a determinant of price elasticity of demand.
durability
A coefficient of price elasticity of demand that is greater than 1 indicates that demand is
elastic
If the quantity supplied by producers is relatively responsive to price changes, supply is relatively price ________
elastic
In the price-elasticity coefficient formula, the numerator being greater than the denominator indicates that demand is ______.
elastic
The price_____ of demand measures the responsiveness, or sensitivity, of consumers to a price change.
elasticity
The price_________ of demand measures the responsiveness, or sensitivity, of consumers to a price change.
elasticity
Property rights are important because they
encourage cooperation by improving the chances of mutually agreeable transactions.
If the price elasticity of demand is unit elastic, the change in price is ______ the change in quantity.
exactly offset by
Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba
experienced an inward shift of its production possibilities curve.
True or false: Income elasticity for farm products is greater than income elasticity for automobiles.
false
The "coincidence of wants" problem associated with barter refers to the fact that
for exchange to occur, each seller must have a product that some buyer wants.
The use of money for exchange and trade
fosters more specialization in production
The term "laissez-faire" suggests that
government should not interfere with the operation of the economy
Price elasticity of demand is generally
greater in the long run than in the short run.
A luxury cruise will exhibit a relatively _________ price elasticity of demand. (Enter one word in the blank.)
higher
The simple circular flow model shows that
households are on the selling side of the resource market and on the buying side of the product market.
"Consumer sovereignty" refers to the
idea that the decisions of producers must ultimately conform to consumer demands.
Supply is perfectly inelastic during the ______.
immediate market period
The length of time over which producers are unable to respond to a change in price with a change in quantity supplied is known as the ______.
immediate market period
A nation can increase its production possibilities by
improving labor productivity.
If the government tightens up on drug dealers and raises the costs of dealing illegal drugs, then the drug addicts' dollar expenditures to feed their addiction will tend to
increase because their demand is price-Inelastic.
If a nation is operating at a point inside the production possibilities curve, it indicates that the nation could
increase its production of both goods X and Y simultaneously.
When the price elasticity of demand for a product is relatively price elastic and price is ______, total revenue will ______.
increased; decrease
The law of increasing opportunity costs states that
increases in the production of one good require larger and larger sacrifices of the other good.
The invisible hand promotes society's interests because
individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.
A 5% decline in the price of cut flowers results in a 3% increase in the quantity demanded. Therefore, the demand for cut flowers is ______.
inelastic
A small percentage change in quantity demanded divided by a larger percentage change in price indicates________ demand.
inelastic
An addict's demand for heroin is an example of a demand that is perfectly
inelastic
If a 4% decrease in the price of coffee leads to a 2% increase in the quantity demanded, the price elasticity of demand for coffee is relatively price
inelastic
If demand is ______, a price decrease will reduce total revenue.
inelastic
If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is
inelastic
If the percentage change in quantity demanded is less than the percentage change in price, then the price elasticity of demand is ______.
inelastic
Lowering the price of a product along the ______ range of demand will decrease total revenue.
inelastic
The short-run demand for gasoline has been shown to be more price_______than long-run demand.
inelastic
When demand is relatively price ________, the coefficient for the price elasticity of demand will be less than one.
inelastic
When price and total revenue move in the same direction along the demand curve, this indicates that demand is_______
inelastic
When the demand for a product is and the price is ________ reduced, total revenue will fall.
inelastic
A product that exhibits perfectly elastic demand has a price elasticity coefficient equal to ______.
infinity
Price floors and ceiling prices both
interfere with the rationing function of prices.
Demand is more price elastic toward the upper-left segment of the demand curve because the original reference quantity ______.
is small
If product demand is relatively elastic, what will be the effect on the total revenue if the price is increased?
it decreases
The demand for autos is likely to be
less price elastic than the demand for Honda Accords.
The economizing problem is one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants.
A product that is considered to be a necessity would have a _______ price elasticity of demand.
lower
A product that is considered to be a necessity would have a__________ price elasticity of demand.
lower
The most efficient combination of resources in producing a given output is the combination that
minimizes the cost per unit of output.
If a nation produces more consumer goods and less capital goods, then the nation will have
more consumption now, but less consumption later.
In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?
"The different brands are almost identical. I always buy the cheapest."
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially
"Those most willing and able to pay for them."
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially
"Through the guiding function of prices and the incentive function of profits."
The supply of product X is perfectly inelastic if the price of X rises by
10 percent and quantity supplied stays the same.
The amount of pizzas that consumers want to buy per week is reflected in the equation P = 15 − .02Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information, we can say that
50 fewer pizzas will be purchased per week for every $1 increase in price.
The elasticity of supply of product X is unitary if the price of X rises by
8 percent and quantity supplied rises by 8 percent.
Which of the following would most exemplify perfectly inelastic demand?
A diabetic's demand for insulin
Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?
How will the output be produced?
What type of price elasticity of demand results from a relatively small percentage change in quantity demanded divided by a relatively larger percentage change in price?
Inelastic
An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is
Inelastic.
Which of the following factors have increased the demand for antiques over time?
Population growth Rising incomes
With price elasticity of supply, the supply curve slopes upward because of the positive relationship between which of the following?
Price and amount supplied
How is total revenue calculated?
Price × Quantity
Which of the following is one of the simplifying assumptions made in constructing a production possibilities curve?
Resources are fully employed and are used in least-cost methods of production.
Which item, when purchased new, would have the lowest price elasticity of demand?
Socks
Which of the following is a determinant of the price elasticity of demand?
Substitutability
______ is the ease of switching from one good to another.
Substitutability
The cross-price elasticity of demand measures which of the following?
The responsiveness of consumer purchases of one product due to a change in the price of some other product
The use of money contributes to economic efficiency because
The use of money contributes to economic efficiency because
Which of the following is not characteristic of a product with relatively inelastic demand?
There are a large number of good substitutes for the good.
Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?
Which output will be produced?
The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by
a budget line.
A supply curve that is parallel to the horizontal axis suggests that
a change in demand will change the equilibrium quantity but not price.
Which of the following is necessary to make a trade in a barter economy?
a coincidence of wants
In a command system,
a government-appointed planning board makes production and allocation decisions.
The phrase "other things equal" means that
a number of relevant variables are assumed to be constant.
Economists typically express the elasticity coefficient as an absolute value in order to ______.
avoid ambiguity
Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that
all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant
Specialization—the division of labor—enhances productivity and efficiency by
all of the means identified in the other answers.
Two major virtues of the market system are that it
allocates resources efficiently and allows economic freedom
The basic purpose of the other-things-equal assumption is to
allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that
an increase in the minimum wage would increase the total incomes of teenage workers as a group.
Curve (a) is the initial curve for the economy, and the nation is initially producing combination P. A shift from curve (a) to curve (b) suggests that the economy can then increase its production of capital goods
and consumer goods simultaneously.
Which product is most likely to be the most price elastic?
automobiles