Microeconomics midterm 2
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
What is the difference between an "increase in supply' and an increase in quantity supplied'?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium, quantity demanded equals quantity supplied.
Let D= demand, S = supply. P = equilibrium price, and Q- equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
D increases, S no change, P and Q increase
The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
Farm revenues decrease.
Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Which of the following statements is true?
Haley has a comparative advantage in making bracelets and Serena in making necklaces.
Which of the following could explain why the demand for table salt is inelastic?
Households devote a very small portion of their income to salt purchases.
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
It is elastic at the highest prices and inelastic at the lowest prices.
Which of the following is a problem inherent in centrally planned economies?
Production managers are more concerned with satisfying government's orders than with satisfying consumer wants.
Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces What is Serena's opportunity cost of making a bracelet?
2 necklaces
Pogo Sticks [Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles What is Barney's opportunity cost of making a unicycle?
2 pogo sticks
Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Bamey. They can gither devote their time to making pogo sticks or making unicycles. What is Fred's opportunity cost of making a unicycle?
3 pogo sticks
Refer to the diagram to the right which shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables Suppose Mendonca is currently producing 60 pounds of vegetables per period. How much meat is it also producing, assuming that resources are fully utilized?
75 pounds of meat
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
S decreases, D no change, P increases, Q decreases
Which of the following is a macroeconomic question?
What determines the growth rate of gross domestic product?
Which of the following is a macroeconomic question?
What determines the inflation rate?
Which of the following is a microeconomic question?
What factors determine the price of carrots?
The three fundamental questions that any economy must address are
What goods and services to produce; how will these goods and services be produced; and who receives them?
A movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste
Which of the following will shift the demand curve for a good?
a decrease in the price of a complementary good
Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre - hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see
a shortage of gasoline
Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?
an increase in supply and an increase in demand greater than the increase in supply
An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in
an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.
Which of the following would cause a decrease in the supply of peanut butter?
an increase the price of peanuts
If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is
an inferior good
Economic models
are simplified versions of reality
Comparative advantage means the ability to produce a good or service
at a lower opportunity cost than any other producer
Which of the following goods would have the most inelastic demand?
bread
You have an absolute advantage whenever you
can produce more of something than others with the same resources.
Income elasticity measures how a good's quantity demanded responds to
change in buyers' incomes.
If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could
change price a little bit and observe what happens to total revenue.
Economics is the study of the ______ people make to attain their goals, given their ______ resources
choices; scarce
________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.
competition
Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and
complements
If the cross - price elasticity of demand for goods X and Y is negative, this means the two goods are
complements
The decision about what goods and services will be produced in a market economy is made by
consumers and firms choosing which goods and services to buy or produce.
If a demand curve shifts to the right, then
demand has increased
An outward shift of a nation's production possibilities frontier represents
economic growth
The opportunity cost of taking a semester- long economics class is
equal to the highest value of an alternative use of the time and money spent on the class.
Microeconomics is the study of
how households and firms make choices
Price elasticity of demand measures
how responsive quantity demanded is to a change in price
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
The production possibilities frontier model shows that
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
The law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease.
A production possibilities frontier with a bowed outward shape indicates
increasing opportunity costs as more and more of one good is produced
If a good has a negative income elasticity of demand, this indicates that the good is
inferior
If society decides it wants more of one good and all resources are fully utilized, then
it has to give up some of another good and incur some opportunity costs.
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
less elastic than
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
linear
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals marginal cost
A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?
marginal revenue
The production possibilities frontier shows the _______ combinations of two products that may be produced in a particular time period with available resources.
maximum attainable
An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.
model
Refer to the table. Assume that Tomaso's Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear
outside Tomaso's production possibilities frontier
The primary purpose of ________ is to encourage the expenditure of funds on research and development to create new products
patents and copyrights
Cross - price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
produce a combination of goods that lies outside its own production possibilities frontier
Every society faces economic trade-offs. This means
producing more of one good means less of another good can be produced.
When you purchase a new pair of jeans you do so in the
product market
is a situation in which a good or service is produced at the lowest possible cost.
productive efficiency
If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
In a market economy, those who are willing and able to buy what is produced
receive the most of what is produced
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
relatively elastic
If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would
remain constant
Refer to the diagram to the right. Point B is
technically efficient
The term "property rights" refers to
the ability to exercise control over one's own resources within the confines of the law
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts more than the demand curve. As a result
the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease
Consider the following economic agents: a. the government b. consumers c. producers Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?
the government
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price
The price elasticity of supply is equal to
the percentage change in quantity supplied divided by the percentage change in price
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if
the price of the good changes
Adam Smith's invisible hand refers to
the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole
If, in the market for oranges, the supply has increased then
the supply curve for oranges has shifted to the right
Without an increase in the supply of the factors of production, how can a nation achieve economic growth?
through technological advancement which enables more output with the same quantity of resources
The points outside the production possibilities frontier are
unattainable
Scarcity refers to the situation in which
unlimited wants exceed limited resources
A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand.
vertical; downward sloping
Allocative efficiency best explains ______, and productive efficiency best explains ______.
what will be produced; how something will be produced
If the economy is currently producing at point Y, what is the opportunity cost of moving to point W?
zero
Which of the following is not a factor of production?
$1,000 in cash
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. What is Haley's opportunity cost of making a bracelet?
1 1/3 necklaces
Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. What is Serena's opportunity cost of making a necklace?
1/2 of a bracelet
Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles What is Barney's opportunity cost of making a pogo stick?
1/2 of a unicycle
Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles Which of the following statements is true?
Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.
Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table to the right shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles Which of the following statements is true?
Barney has an absolute advantage in making both products
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic.
The branch of economics which studies the behavior of entire economies is called
Macroeconomics
In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
The demand curve shifts to the right
Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
Opportunity cost is defined as
The highest-valued alternative that must be given up to engage in an activity.
Which of the following is a positive economic statement?
The minimum wage law causes unemployment.
Which of the following is a normative economic statement?
The price of gasoline is too high.
Which of the following describes a characteristic of a perfectly competitive market?
There are many buyers and sellers.
Which of the following correctly describes the relationship between economic efficiency and economic equity?
There is often a trade-off between the two.
Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."
This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.
