Micro Midterm

B

A capital-intensive production process is one that a. Has a high ratio of labor to capital. b. Has a high ratio of capital to labor. c. Is used only in the United States. d. All of the choices are correct.

Shift in Demand

A change in the quantity demanded at any (every) price.

Demand Curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Monopoly

A firm that produces the entire market supply of a particular good or service.

Merit Goods

A good or service society deems everyone is entitled to some minimal quantity of.

Public Good

A good or service whose consumption by one person does not exclude consumption by others.

Private Good

A good or service whose consumption by one person excludes consumption by others.

B

A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to a. Increase and quantity to decrease. b. Decrease and quantity to decrease. c. Increase and quantity to increase. d. Decrease and quantity to increase.

B

A production possibilities curve indicates the a. Combinations of goods and services an economy is actually producing. b. Maximum combinations of goods and services an economy can produce given its available resources and technology. c. Maximum combinations of goods and services an economy can produce given unlimited resources. d. Average combinations of goods and services an economy can produce given its available resources and technology.

Demand Schedule

A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Regressive Tax

A tax system in which tax rates fall as incomes rise.

Progressive Tax

A tax system in which tax rates rise as incomes rise.

Proportional Tax

A tax that levies the same rate on every dollar of income.

26.3

According to the income elasticity formula below, Income elasticity of demand = EI = % change in quantity demanded ÷ % change in income By how much will popcorn sales increase if average income goes up by 8 percent? (Assume the income elasticity of popcorn is 3.29.)

A

According to the law of demand, a demand curve a. Has a negative slope. b. Is a horizontal or flat line. c. Has a positive slope. d. Exceeds the economy's ability to produce.

Mixed Economy

An economy that uses both market signals and government directives to allocate goods and resources.

Market Failure

An imperfection in the market mechanism that prevents optimal outcomes

Economic Growth

An increase in output (real GDP); an expansion of production possibilities

Economic Growth

An increase in output (real GDP); an expansion of production possibilities.

Inflation

An increase in the average level of prices of goods and services.

Free Rider

An individual who reaps direct benefits from someone else's purchase (consumption) of a public good.

Natural Monopoly

An industry in which one firm can achieve economies of scale over the entire range of market supply.

Price Ceiling

An upper limit imposed on the price of a good.

A

Any imperfection in the market mechanism that prevents optimal outcomes is known as a. Market failure. b. failure. c. External cost. d. Public cost.

Factor Market

Any place where factors of production (e.g., land, labor, capital) are bought and sold.

Product Market

Any place where finished goods and services (products) are bought and sold)

A

Assume that pencils and pens are substitutes. If the price of pencils rises ceteris paribus, then we will see a. An increase in the demand for pens. b. A decrease in the demand for pens. c. An increase in the supply of pens. d. A decrease in the supply of pens.

A

Assume that steel is used to produce monkey wrenches. Ceteris paribus, if the price of steel rises, then a. The supply curve for monkey wrenches will shift to the left. b. The supply curve for monkey wrenches will shift to the right. c. There will be a leftward movement along the initial supply curve for monkey wrenches. d. There will be a rightward movement along the initial supply curve for monkey wrenches.

D

Assume two goods are substitutes. Ceteris paribus, a decrease in the price of one good will cause the equilibrium price of the other good to a. Increase and the equilibrium quantity of the other good to increase. b. Increase and the equilibrium quantity of the other good to decrease. c. Decrease and the equilibrium quantity of the other good to increase. d. Decrease and the equilibrium quantity of the other good to decrease.

B

Average GDP per person is a. Also known as GDP. b. Also known as per capita GDP. c. The value of the factors of production used to produce output in a country. d. A measure of the economic growth rate of a country.

A

Ceteris paribus, an increase in the number of sellers of running shoes causes equilibrium price to a. Decrease and equilibrium quantity to increase. b. Decrease and equilibrium quantity to decrease. c. Increase and equilibrium quantity to increase. d. Increase and equilibrium quantity to decrease.

D

Ceteris paribus, if the price of a digital camera rises, then we can expect a. An increase in the demand for digital cameras. b. An increase in the quantity demanded of digital cameras. c. A decrease in the demand for digital cameras. d. A decrease in the quantity demanded of digital cameras.

B

Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles? a. A decrease in the price of new automobiles. b. An increase in consumers' income. c. The new models being perceived as ugly compared with old models. d. Consumer expectations that the price of new automobiles will be lower next year.

Externalities

Costs (or benefits) of a market activity borne by a third party; the difference between the social and private costs (benefits) of a market activity.

Capital

Final goods produced for use in the production of other goods, such as equipment and structures.

Complementary Goods

Goods frequently consumed in combination; when the price of good x rises, the demand for good y falls, ceteris paribus.

Substitute Goods

Goods that substitute for each other; when the price of good x rises, the demand for good y increases, ceteris paribus.

Government Failure

Government intervention that fails to improve economic outcomes.

Antitrust

Government intervention to alter market structure or prevent abuse of market power.

A

If demand is elastic, then a. An increase in price will reduce total revenue. b. An increase in price will increase total revenue. c. A decrease in price will reduce total revenue. d. A decrease in price will have no effect on total revenue.

C

If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent, a. New cars are a normal good, and the income elasticity is +.5. b. New cars are an inferior good, and the income elasticity is +2.0. c. New cars are a normal good, and the income elasticity is +2.0. d. New cars are an inferior good, and the income elasticity is +0.5.

Substitute, 5

If the cross-price elasticity of demand between printed textbooks and e-books is +0.50, a. Are e-books and textbooks complementary or substitute goods? b. If textbook prices increase by 10 percent, by how much will e-book demand change?

B

If the elasticity of demand is 3, and the price rises by 15 percent, then a. The quantity demanded will increase by 5 percent. b. The quantity demanded will fall by 45 percent. c. The quantity demanded will rise by 4.5 percent. d. The percentage change in quantity demanded will fall as income rises.

B

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded. a. 6 percent increase b. 6 percent decrease c. 0.6 percent increase d. 0.6 percent decrease

A

If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be a. 0.5 b. 5.0 c. 50 d. -5.0

C

In economics, scarcity means that a. A shortage of a particular good will cause the price to fall. b. A production possibilities curve cannot accurately represent the trade-off between two goods. c. Society's desires exceed resources available. d. The market mechanism has failed.

C

In terms of the production possibilities curve, inefficiency is represented by a. All points on the curve. b. All points outside the curve. c. All points inside the curve. d. A rightward shift of the curve.

Scarcity

Lack of enough resources to satisfy all desired uses of those resources.

Price Floor

Lower Limit set for the price of a good.

Efficiency

Maximum output of a good from the resources used in production.

Income Quintile

One-fifth of the population, rank-ordered by income (e.g., top fifth).

Productivity

Output per unit of input-for example, output per labor-hour.

Transfer Payments

Payments to individuals for which no current goods or services are exchanged, like Social Security, welfare, and unemployment benefits.

A

Per capita GDP will rise if GDP a. Increases more rapidly than the population increases. b. Increases at the same rate as the population increases. c. Decreases and the population increases. d. Increases more slowly than the population increases.

Capital-Intensive

Production processes that use a high ration of capital to labor inputs.

Factors of Production

Resource inputs used to produce goods and services, e.g., land, labor, capital, entrepreneurship.

C

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to a Raise his price to increase revenues. b. Keep his price the same to maximize revenues. c. Lower his price to increase revenue. d. Offer more high-priced products.

B

Smart phones and apps are complementary goods. The cross price elasticity of demand between smart phones and apps is expected to be. a. Positive b. Negative c. Equal to Zero d. Undefined

C

Suppose both the demand for and supply of salsa increase (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of salsa? a. Both the price and quantity increase. b. The price increases but the change in the quantity cannot be determined. c. The quantity increases but the change in the price cannot be determined. d. Both the price and quantity decrease.

D

Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to a. 0.16 b. 0.2 c. 5.0 d. 6.3

Supply

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus.

Market Power

The ability to alter the market price of a good or service.

Production Possibilities

The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.

Market Shortage

The amount by which the quantity demanded exceeds the quantity supplied at a given price; excess demand.

Market Surplus

The amount by which the quantity supplied exceeds the quantity demanded at a given price; excess supply.

Entrepreneurship

The assembling of resources to produce new or improved products and technologies.

Ceteris Paribus

The assumption of nothing else changing

D

The basic formula for price elasticity of demand is a. The percentage change in price divided by the percentage change in quantity demanded. b. The change in quantity demanded divided by the change in price. c. The percentage change in income divided by the percentage change in price. d. The percentage change in quantity demanded divided by the percentage change in price.

D

The current U.S. economy is based primarily on the production of a. Agricultural goods. b. Goods for federal government use. c. Manufacturing goods. d. Services.

C

The demand will be _______________ if the consumer has _________ substitute goods to choose from a. elastic; less b. inelastic; more c. elastic; more d. elastic; no

Laissez Faire

The doctrine of "leave it alone," of nonintervention by government in the market mechanism.

Per Capita GDP

The dollar value of GDP divided by total population; average GDP.

B

The formula for cross-price elasticity is a. The percentage change in the quantity demanded for one good divided by the percentage change in income. b. The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good. c. The percentage change in the price of one good divided by the percentage change in the quantity demanded of another good. d. The percentage change in the quantity demanded divided by the average change in price.

C

The free-rider problem a. Arises from the ability to exclude an individual from the benefits of someone else's purchase. b. Is a government failure resulting from consumption of private goods. c. Reflects the inability to exclude an individual from the benefits of someone else's purchase. d. Means that the market mechanism is the most efficient way to produce public goods.

B

The government's role in limiting smoking in many buildings is justified by considerations of a. Inequity. b. Externalities. c. Market power. d. Government failure.

Unemployment

The inability of labor force participants to find jobs.

Human Capital

The knowledge and skills possessed by the workforce.

A

The measure of final goods and services produced in the United States is the a. GDP of the United States. b. Percentage change in the GDP of the United States. c. Per capita GDP in the United States. d. Total sales of all goods during the year.

Optimal Mix of Output

The most desirable combination of output attainable with existing resources, technology, and social values.

Opportunity Cost

The most desired goods or services that are forgone in order to obtain something else.

Equilibrium Price

The price at which the quantity of a good demanded in a given time period equals the quantity supplied.

Law of Demand

The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.

Law of Supply

The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus

Macroeconomics

The study of aggregate economic behavior, of the economy as a whole.

Economics

The study of how best to allocate scarce resources among competing uses.

Microeconomics

The study of individual behavior in the economy, of the components of the larger economy.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a nation's borders in a given time period.

Market Demand

The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands.

Market Supply

The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus.

Market Mechanism

The use of market prices and sales to signal desired outputs (or resource allocations).

Demand

The willingness and ability to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus.

A

To calculate market supply, we a. Add the quantities supplied for each individual supply schedule horizontally. b. Add the quantities supplied for each individual supply schedule vertically. c. Find the average quantity supplied at each price. d. Find the difference between the quantity supplied and the quantity demanded at each price.

C

To find the average percentage change in quantity demanded, a. The change in price is divided by the percentage change in quantity demanded. b. The change in quantity demanded is divided by the change in price. c. The change in quantity demanded is divided by the average quantity. d. The change in price is divided by the average price.

How much to produce? For whom to produce? What to produce?

What are the three core economic questions societies must answer?

D

When demand is price-inelastic, ceteris paribus, an increase in a. Price leads to lower total revenue. b. Total revenue means quantity rises. c. Total revenue indicates a reduction in price. d. Price leads to greater total revenue.

E

Which curve shifts and in which direction when the following events occur in the domestic car market? Imported cars become more expensive. a. Supply decreases. b. Supply increases. c. There is no change in either curve. d. Demand decreases. e. Demand increases.

D

Which curve shifts and in which direction when the following events occur in the domestic car market? The U.S. economy falls into a recession. a. Supply decreases. b. Supply increases. c. Demand increases. d. Demand decreases. e. There is no change in either curve.

E

Which curve shifts and in which direction when the following events occur in the domestic car market? The price of gasoline increases. a. There is no change in either curve. b. Demand increases. c. Supply decreases. d. Supply increases. e. Demand decreases.

D

Which curve shifts and in which direction when the following events occur in the domestic car market? U.S. autoworkers go on strike. a. Supply increases. b. Demand decreases. c. There is no change in either curve. d. Supply decreases. e. Demand increases.

A

Which of the following is most likely a private good? a. Bicycles. b. National defense. c. Sidewalks. d. The administration of justice.