Microeconomics Exam 1 Review (Chapter 1, 2, 3, 4)

If the government sets out to help low-income people by establishing a maximum amount for rent:

a price ceiling has been set and a shortage of rental units may occur.

A decrease in supply means:

a shift to the left of the entire supply curve

In addition to setting prices, the government has attempted to help farmers by: a. restricting output b. essentially paying them not to produce c. creating some surpluses, buying them, and also restricting output. d. doing all of the above

d. doing all of the above

Farm legislation has historically tried to increase farm income by: a. guaranteeing a minimum price to farmers b. imposing limits on production c. insulating farmers from fluctuations in prices d. doing all of the above

d. doing all of the above.

The equilibrium price is often considered to be "just right" because: a. it equates the amount supplied with the amount demanded b. it does not result in a shortage c. it does not result in a surplus d. of all of the above

d. of all of the above

A negative relationship between the quantity demanded and price is called the law of ______.

demand.

An increase in the price of football tickets will cause the ________ for (of) basketball tickets (a substitute) to ________.

demand; increase

A market shortage occurs if the quantity:

demanded is greater than the quantity supplied.

A market surplus occurs if the quantity:

demanded is less than the quantity supplied.

Specialization arises because

differences in the costs of production give some producers a comparative advantage in the production of particular goods or services.

In economics, the function of theories, laws, and hypotheses is to:

discover relationships between events that are important to economic behavior.

Government's role of protecting property rights is considered:

enforcing a legal system

Based on the exhibit, and assuming there are no third-party payers, the:

equilibrium price for physician office visits is $40.

A market surplus occurs if the:

equilibrium price is below the actual price

A market price support policy attempts to assist the farm industry by:

establishing price floors in farm output markets

The problem of determining what goods and services society should produce:

exists because there are not enough resources to provide all the goods and services that people want to purchase.

If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will:

export sweaters to Britain and import machinery from Britain.

An increase in the wage rate paid to web site technical support employees would result in a change illustrated by the move from:

h to i in Figure (b).

A cost that farm subsidies and price floors imposes on the rest of the economy is:

higher consumer commodity prices

An answer to the question "How are goods produced?" determines:

how resources are combined in the production of goods.

In a market capitalist economy:

individual ownership and decision making are relied upon

Microeconomics deals with:

individual units in the economy

Water is considered a scarce good rather than a free good because:

it has alternative uses

A price ceiling will have no effect if:

it is set above the equilibrium price.

Making choices that are expected to achieve the highest possible value for some objective is termed:

maximizing

The law of increasing opportunity cost means that:

opportunity cost increases when you produce more of one good while moving along a production possibilities curve.

The Case in Point on the Simpsons indicated that even fictional characters face:

opportunity costs

The exhibit shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel best describes how this will affect the market for oranges?

panel (b)

A key theme fundamental to all of economics is:

people have unlimited wants facing limited means to satisfy them

n the country depicted in this exhibit, the opportunity cost of an additional ton of radishes would be greater at:

point L

A maximum legal price is called:

price ceiling

One reason you go to college is to improve your employment opportunities and obtain a higher income in the future. In the context of production possibilities, this is most comparable to:

producing relatively more capital goods and relatively fewer consumer goods.

Rent controls set a price ceiling below the equilibrium price and therefore:

quantity demanded exceeds the quantity supplied.

If demand and supply both decrease:

quantity will go down but the effect on price is indeterminate

A competitive market with flexible prices and many buyers and sellers will:

reach an equilibrium where the market clears.

In a command socialist economy:

resources are government owned and government exercises broad power over their use.

In a competitive market, if there should be a surplus of a product at a given price:

sellers will drive the price down.

Increases in resources or improvements in technology will tend to cause a society's production possibilities curve to:

shift outward to the right.

If rent controls are set at Rent 0:

some renters would be willing to pay a price as high as Rent4 for Q0 units.

Positive statements are:

statements that can be tested

A supply curve that is upward sloping means that:

suppliers will want to sell more at higher prices

A curve that shows the relationship between the price and quantity supplied during a particular period, all other things unchanged, is the:

supply curve.

An example of a supply shifter is:

technology

Whenever a choice is made:

the cost of that choice could be referred to as opportunity cost

When the market price is established where demand and supply curves intersect:

the quantity demanded and the quantity supplied are equal.

Factors of production are:

the resources the economy has available to produce goods and services.

Human capital is:

the set of acquired skills and abilities that workers bring to the production of goods and services.

Any point inside a production possibilities curve indicates:

unemployment and/or inefficiency

Any factor of production is capital if it:

was produced and can be used to produce other goods and services.

An answer to the question "For whom" determines:

who gets the goods and services produced

A surplus of 210 bags of chocolate-covered peanuts exists if the price is ________ cents per bag.

90

Suppose you observe that the sun sets every evening after the six o'clock business report. If you conclude that the six o'clock business report makes the sun set, you are guilty of the fallacy of:

False cause.

In the 1960s the dominant maker of mainframe computers was:

IBM

Researchers demonstrate conclusively that drinking 4-6 ounces of ginger ale each day increases life expectancy by 3 years. What happens in the market for ginger ale?

The equilibrium price and quantity rise.

The price of oranges rises. What happens in the market for apples, which are a substitute for oranges?

The equilibrium price and quantity rise.

If a price floor at P 4 is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to:

Q3 - Q0

Without rent controls, the equilibrium rent is _______ and the equilibrium quantity is _______.

Rent 2; Q2

What is the difference between a shortage and scarcity?

Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.

Economics is a:

Social science that deals with making choices among alternatives

Most firms in the United States today are:

Sole proprietorships and partnerships

The primary difference between a change in supply and a change in the quantity supplied is:

a change in quantity supplied is a movement along the supply curve, and a change in supply is a shift of the supply curve.

The equilibrium price in a market is established subject to the all other things unchanged condition and, therefore, very well may change due to:

a change in the price of resources inputs used to produce the good.

The exhibit shows production possibilities curves for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is now operating at point N. Suppose Country B wants to be able to produce more radishes and more bicycles. To do this, it must:

acquire more capital, more labor, more natural resources, and/or better technology

The primary emphasis in macroeconomics is on

aggregates in the economy.

Ceteris paribus means:

all other things unchanged

The concept of scarcity indicates that:

almost all goods have alternative uses

Two goods are substitutes if:

an increase in the price of one leads to an increase in demand for the other.

Economists in general agree that rent controls are:

an inefficient and ineffective way to help low-income families

The demand curve for stocks shows that:

at lower prices, more people calculate that the expected value of the firm's future earnings justify the stock's purchase.

The law of demand is illustrated when: a. increase in tuition encourages more students to enroll in college because the quality of education has risen. b. an increase in the purchases of personal computers results from lower prices c. higher oil prices cause oil companies to drill for new sources of oil. d. higher fees for the use of public golf courses force golfers to purchase fewer golf balls.

b. an increase in the purchases of personal computers results from lower prices.

If two countries participate in free trade:

both countries as a whole may gain from the trade

If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibilities curve is:

bowed out from the origin

A market is a set of arrangements where:

buyers and sellers can get together and buy and sell.

Which of the following would be a part of macroeconomics? A study of: a. the change in automobile sales due to a change in the price of automobiles b. a tax reduction impact on the profits of a business c. inflation d. the unemployment of workers displayed by technological change in the typesetting industry

c. inflation

A factor of production that is produced in order to produce something else is called:

capital

A movement along the production possibilities curve would be a result of:

changes in the combinations of the two goods produced

The North Korean economy is currently classified as:

command socialism

Countries import some goods and export other goods primarily because of:

comparative advantage

An example of a demand shifter is:

consumer preferences

A feature that distinguishes economists' approach to making choices is (are): a. assigning opportunity costs a major role in their analyses of choices b. assuming individuals make choices to maximize objectives c. emphasizing that choices are made at the margin d. all of the above

d. all of the above

According to the Case in Point on corn, which of the following is a criticism that has been raised of government spending in support of corn-based ethanol? a. limited reduction in dependence on foreign oil b. detrimental effects on the environment c. increased food prices and an increase in world hunger d. all of the above

d. all of the above

Price ceilings which lead to shortages will impose costs on society because they: a. will lead to waiting lines b. may result in black market prices, which are higher than the market-determined price would be. c. lead to a smaller quantity offered on the market d. do all of the above

d. all of the above

If countries do not engage in international trade: a. they give up the ability to specialize in production. b. worldwide levels of production are lower. c. the world will be operating inside its production possibilities curve. d. all of the above are true

d. all of the above are true

In the market for personal computers and in the stock market: a. supply and demand shifts change price and quantities b. persistent shortages and surpluses rarely exist c. in response to shifts in demand and supply, equilibrium is restored quickly. d. all of the above are true

d. all of the above are true

Which of the following statements is (are) true? a. In the last few decades, health-care spending has grown dramatically b. Health-care costs have grown relative to an increasing total output. c. Health-care costs account for more than two and a half times the share of total output that they did in 1960. d. All of the above are true

d. all of the above are true.

An important reason for the rapid increase in output in the computer industry after 1980 was: a. the invention of the microchip b. a reduction in the size and cost of computers c. a great increase in the number of computer producers d. all of the above

d. all of the above.

Improvements in technology provide benefits to a. consumers, through lower prices b. workers, although some jobs may be eliminated c. firms, through lower production costs d. all of the above

d. all of the above.

A ceiling price set in the policy of rent controls:

may result in some people who rent out units to leave the business because they cannot cover costs

The study of a single firm and how it determines prices would fall under:

microeconomics

A simplified representation of a particular problem is a:

model.

The current rate of unemployment of 5 percent is too high. This is a _______ statement.

normative

Most economists' disagreements are a result of:

normative considerations

Economists are:

not always in agreement on the best way to implement policy decisions.

Scarcity in economics means:

not having sufficient resources to produce all the goods and services we want

Efficient production implies that it is:

not possible to produce more of one good without producing less of another good.

Rent controls:

often help high-income families.

An example of a natural resource is:

oil in the ground.

Inefficient production or unemployment exists when the economy is ________ the production possibilities curve.

operating inside

The sacrifice of an alternative is called:

opportunity cost