Microeconomics mid-term

The cross elasticity of demand between digital cameras and memory cards is likely to be

a negative number.

Refer to the diagram. A price of $60 in this market will result in

a surplus of 100 units.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that

consumer preferences have changed in favor of A so they now want to buy more at each possible price.

Payments that a firm makes to obtain needed resources comprise its

costs

In a market economy, a significant change in consumers' desire for product X will

do all the things mentioned in the other answers.

The market system

effectively harnesses the incentives of workers and entrepreneurs.

An increase in the demand for a product and a reduction in its costs of production would

encourage firms to enter an industry.

"Creative destruction" in a market system is brought about by

entrepreneurship

Economic resources are also called

factors of production.

Refer to the diagram. If price falls from $10 to $2, total revenue

falls from A + B to B + C, and demand is inelastic.

Refer to the diagram. Flow 3 represents

goods and services.

If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is

greater than zero.

The "invisible hand" concept refers to the

guiding function of prices in a market system.

You should decide to go to a movie

if the marginal benefit of the movie exceeds its marginal cost.

Refer to the diagram. Arrows (3) and (4) represent

incomes and consumer expenditures, respectively.

The law of demand states that, other things equal,

price and quantity demanded are inversely related.

The demand curve shows the relationship between

price and quantity demanded.

An increase in the quantity demanded means that

price has declined and consumers therefore want to purchase more of the product.

An increase in demand coupled with a simultaneous and bigger decrease in supply will cause equilibrium

price to go up and quantity to go down.

In the circular flow model, households earn their incomes in the

resource markets.

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of

scarcity and opportunity costs.

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the

supply curve for cigarettes leftward.

Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that

the income elasticity for the good is greater than 0.

(Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when

the opportunity cost of attending college is extraordinarily high.

A characteristic of centrally planned economies is that

the price is relatively unimportant in allocating resources.

A negative income elasticity of demand coefficient indicates that

the product is an inferior good.

Refer to the diagram. Arrows (1) and (3) are associated with

the resource market.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

the substitution effect

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

the substitution effect.

When economists speak of "demand" in a particular market, they refer to

the whole demand curve or schedule.

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.

(Consider This) A direct cost of going to college is

tuition, while an indirect cost (opportunity cost) is forgone income while in college.

In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s)

2 and 4.

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after an increase in wages of bicycle workers, and a significant increase in the price of gasoline?

4 (upmost point)

According to economists, economic self-interest

is a reality that underlies economic behavior.

If there is a surplus of a product, its price

is above the equilibrium level.

One basic difference between "labor" and "entrepreneur" is that

labor is hired by a firm, whereas the entrepreneur owns the firm.

Refer to the diagram. Flow 2 represents

land, labor, capital, and entrepreneurial ability

The upward slope of the supply curve reflects the

law of supply.

Refer to the diagram. A shortage of 160 units would be encountered if price was

$0.50.

Refer to the diagram. The equilibrium price and quantity in this market will be

$1.00 and 200.

Refer to the diagram. A surplus of 160 units would be encountered if the price was

$1.60.

The income elasticity of demand for food is roughly 1. Suppose a consumer's monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be

$800 per month.

A consumer's weekly income is $300, and the consumer buys 5 bars of chocolate per week. When weekly income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about

1.91

A 3 percent increase in the price of tea causes 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

2

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each, for a total revenue of $18. Based on the data given in the table, the most economically efficient production technique is

A (3,2,1,1)

Which types of goods are most adversely affected by recessions?

Goods for which the income elasticity coefficient is relatively high and positive.

The relationship between a consumer's monthly income and monthly consumption of four products, A-D, is shown below. Which product listed is an example of an inferior good?

C (Goods demanded are decreased -from 20 to 10-)

If the price of Pepsi decreases, other factors constant, then we'd expect to see a consequent shift of the demand curve for

Coke to the left.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then

F represents a price that would result in a shortage of AC.

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Firms are better able to attract inputs, as these inputs do not have to share the risk.

Select the graph above that best shows the change in the market for gasoline, when the price of oil, which is used to produce gasoline, increases because of reduced production by major oil-producing nations.

Graph D (Two left-ward arrows on supply)

Select the graph that best shows the change in the market for Florida oranges, when a major frost damages the orange crop in California.

Graph D (left-ward arrows on supply)

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

How will the output be produced?

Which of the following is not considered by economists to be an economic resource?

Money

Refer to the above table. Which product is a normal good but least responsive to a change in income?

Product X (+6 to +3)

Refer to the above table. Which product would be an inferior good?

Product Y (-1 to +1)

Refer to the above table. Which product is most responsive to a change in income?

Product Z (+4 to +8)

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled

The Wealth of Nations.

(Consider This) What is the best economic explanation for why a person would drop out of college in order to start a business?

The expected future benefits from starting a business now are greater than the costs.

Suppose the income elasticity of demand for toys is +2.0. This means that

a 10 percent increase in income will increase the purchase of toys by 20 percent.

Suppose the income elasticity of demand for toys is −0.5. This means that

a 12 percent increase in income will decrease the purchase of toys by 6 percent.

If two goods are complements,

a decrease in the price of one will increase the demand for the other.

A surplus of a product will arise when price is

above equilibrium, with the result that quantity supplied exceeds quantity demanded.

The assertion that "there is no free lunch" means that

all production involves the use of scarce resources and thus the sacrifice of alternative goods

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by

an increase in incomes if the product is a normal good.

A leftward shift of the supply curve for oil in the United States is most likely to result from

an increase in the costs of exploration and drilling for oil.

Which of the following lists includes only capital resources (and therefore no labor or land resources)?

autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

A person should consume more of something when its marginal

benefit exceeds its marginal cost.

Economics is a social science that studies how individuals, institutions, and society may

best use resources to maximize satisfaction of economic wants.

In the simple circular flow model,

businesses are sellers of final products.

In the circular flow model of the market system, households' major role is to

buy products and sell resources.

Blu-ray players and Blu-ray discs are

complementary goods.

A large increase in the supply of smart TVs occurs simultaneously with a smaller decrease in its demand. As a result, the equilibrium price will

decrease and the equilibrium quantity will increase.

If X is a normal good, a rise in money income will shift the

demand curve for X to the right.

If Z is an inferior good, an increase in money income will shift the

demand curve for Z to the left.

(Consider This) Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2015 and 240 million pounds for $3 per pound in 2016. Based on this information, we can conclude that the

demand for coffee beans has increased.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n)

increase in the price of complementary good Y.

Suppose the income elasticity of demand for jewelry is 2. Other things equal, a 10 percent increase in consumer income will

increase the quantity of jewelry purchased by 20 percent.

At the current price, there is a shortage of a product. We would expect price to

increase, quantity demanded to decrease, and quantity supplied to increase.

A government subsidy to the producers of a product

increases product supply.

If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are

independent goods.

If consumer incomes increase, the demand for product X

may shift either to the right or left.

Money is not an economic resource because

money, as such, does not produce anything.

Economics involves marginal analysis because

most decisions involve changes from the present situation.

An "increase in the quantity supplied" suggests a

movement up along the supply curve.

One basic difference between "land" and "capital" resources is that land is

natural, while capital is created by humans.

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the

private sector through the earning and spending of income.

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices.

The two basic markets shown by the simple circular flow model are

product and resource.

Households and businesses are

sellers in the resource and product markets respectively.

An improvement in production technology will

shift the supply curve to the right.

Refer to the diagram. A price of $20 in this market will result in a

shortage of 100 units.

Economic profits in an industry suggest the industry

should be larger to better satisfy consumers' desire for the product.

If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that

store brand macaroni and cheese is an inferior good.

If a 10 percent increase in the price of Good A results in an increase of 5 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

substitutes goods.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then

supply has decreased and equilibrium quantity has decreased.

Compared to coffee, we would expect the cross elasticity of demand for

tea to be positive, but negative for cream.

Refer to the diagram. In the P1 to P2 price range, we can say

that demand is elastic with respect to price.

Opportunity costs exist because

the decision to engage in one activity means forgoing some other activity.

Graphically, the market demand curve is

the horizontal sum of individual demand curves.

Normative statements are concerned primarily with

What ought to be/what should be

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be

a positive number

Which of the following is considered to be an entrepreneur?

a self-employed person

Refer to the diagram above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S3?

an increase in the price of soybeans

Economic profits and losses

are essential to the reallocation of resources from less desired to more desired goods.

In a market system, employees and suppliers

are usually shielded from risk, but at the cost of not sharing in the profits of the firm.

Money is not considered to be an economic resource because

as such it is not productive.

"Consumer sovereignty" means that

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

The study of economics is primarily concerned with

choices that are made in seeking the best use of resources.

A budget line is a graph that shows the various combinations of two products that a

consumer can buy with a given amount of money income.

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.

An increase in the price of a product will reduce the amount of it purchased because

consumers will substitute other products for the one whose price has risen.

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

have some firms go out of business.

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.

In the resource market,

households sell resources to businesses.

"Consumer sovereignty" refers to the

idea that the decisions of producers must ultimately conform to consumer demands.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. If X is a normal good, an increase in income will

increase D, increase P, and increase Q.

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.

One reason that the quantity demanded of a good increases when its price falls is that the

lower price increases the real incomes of buyers, enabling them to buy more.

(Consider This) The assertion that Facebook is "free"

may be true for its users, but only because someone else is covering the costs.

(Consider This) "Free" products offered by firms

may or may not be free to individuals receiving them but are never free to society.

Cross elasticity of demand is

negative for complementary goods.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

negative, and therefore X is an inferior good.

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

negative, and therefore these goods are complements.

We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates

opportunity costs

For economists, the word "utility" means

pleasure or satisfaction.

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

positive, and therefore X is a normal good.

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

positive, and therefore these goods are substitutes.

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods.

The location of the product supply curve depends on

production technology.

If the price of a product decreases, we would expect

quantity supplied to decrease.

Assuming the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will

realize an economic profit of $10.

The term "quantity demanded"

refers to the amount of a product that will be purchased at some specific price.

The money income of households consists of all the following, except

revenues

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2?

the development of a more effective insecticide against corn rootworm

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by

the development of more efficient machinery for producing this commodity.

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

the income effect.

The production possibilities curve is a graph of

the maximum combinations of products that can be produced with the available resources.

In moving along a supply curve, which of the following is not held constant?

the price of the product itself

The main function of the entrepreneur is to

to innovate

Which of the following goods will least likely suffer a decline in demand during a recession?

toothpaste

For which product is the income elasticity of demand most likely to be negative?

used clothing

Refer to the diagram. Flow 1 represents

wage, rent, interest, and profit income.

A positive statement is concerned primarily with

what is

The term consumer sovereignty means that

what is produced is ultimately determined by what consumers buy.