Microeconomics Chapters 1-5

Check My Work Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

shortage to exist and the market price of roses to increase.

A key determinant of the price elasticity of supply is

the ability of sellers to change the amount of the good they produce.

Normal cost of living expenses, such as room and board, are included in the opportunity cost of attending college.

false

The principle that "trade can make everyone better off" applies to interactions and

families, states within the united states, and nations

Economists make assumptions to

focus their thinking on the essence of the problem at hand.

In which of the following situations would supply be the most elastic?

A furniture manufacturer is operating its factory 8 hours per day.

Suppose an economist develops a theory that higher gas prices lead people to take more local vacations. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data.

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

Consumers decrease their quantity demanded more in the long run than in the short run

Almost all economists agree that a legitimate role for the government is

the redistribution of income.

In a market economy, economic activity is guided by

self-interest and prices.

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

Belarus should export linen to Russia

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls?

Both the equilibrium price and quantity would increase.

Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?

Students would purchase more than 750 cups per day

Which of the following would shift the supply of Green Bay Packers football jerseys to the left?

The cost of the fabric used to make the jerseys increases

What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?

The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases

Which of the following is an example of a positive, as opposed to normative, statement

The unemployment rate last year was lower than any other year in the last century.

Which of these statements best represents the law of supply?

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

When quantity demanded has increased at every price, it might be because

the price of a complementary good has decreased

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market?

to protect an industry from foreign competition

Marco says that he will spend exactly $100 per month on restaurant meals, regardless of the price of restaurant meals. Marco's demand for restaurant meals is

unit elastic.

Economics is the study of how society manages its

unlimited wants and limited resources

In the circular-flow diagram, which of the following items flows from firms to households through the markets for the factors of production?

wages, rent, and profit

Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is

$42,000

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

0.3

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

1.43, and an increase in the price will cause hotels' total revenue to decrease

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic

Which of the following is true about market economies?

Market economies are more efficient than centrally-planned economies.

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true?

Neither country could gain from trade with each other because neither one has a comparative advantage.

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

People respond to incentives

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury

A species of snakes became extinct due to pollution in a river where the snakes once lived. This is an example of

a market failure caused by an externality.

Fluctuations in economic activity are known as

business cycle.

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.

A fundamental concept in economics is the idea of

scarcity.

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

demand for ice cream cones in this price range is elastic.

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

demand for the good is said to be inelastic

When the government redistributes income from the wealthy to the poor,

equality is improved, but efficiency is not

An increase in the price of a good will

increase quantity supplied.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers

A statement describing how the world should be

is a normative statement

Which of the following is likely to have the most price elastic demand?

lattés

The price elasticity of demand measures the

magnitude of the response in quantity demanded to a change in price.

Economists, like mathematicians, physicists, and biologists,

make use of the scientific method, try to address their subject with a scientist's objectivity, and devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs

If the quantity supplied is the same regardless of price, then supply is

perfectly inelastic

In a market economy, supply and demand are important because they

play a critical role in the allocation of the economy's scarce resources, determine how much of each good gets produced, can be used to predict the impact on the economy of various events and policies

Louisa sends candy to the troops overseas. When Louisa's income rises by 3 percent, her quantity demanded of candy increases by 5 percent. For Louisa, the income elasticity of demand for candy is

positive, and candy is a normal good.

Which of the following is likely to have the most price inelastic demand?

prescription medicine

When a supply curve is relatively flat, the

supply is relatively elastic

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

the equilibrium quantity decreases, and the equilibrium price is unchanged.