Chapter 1: ABM 1041 Study Guide

Suppose the country of Florin can produce either 400 dresses or 200 daggers. What is the opportunity cost of one dress in terms of daggers?

1/2 dagger

The demand for gasoline is rising. Which statement describes a possible cause? A. Consumers expect prices to rise in the near future. B. Commuters are switching from driving to public transportation. C. Drivers are purchasing more fuel-efficient cars. D. Incomes are falling.

A. Consumers expect prices to rise in the near future.

An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to _____ and the market equilibrium quantity to _____. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease

A. decrease; increase

If the number of tomato growers in the market increases, the supply: A. of tomatoes increases. B. of tomatoes decreases. C. of tomatoes remains constant. D. curve for tomatoes shifts to the left.

A. of tomatoes increases.

At market equilibrium A. producers offer the same amount of a product that consumers want. B. producers switch to substitution products. C. consumers switch to complementary products. D. consumers offer to buy stored surpluses at marked-down prices.

A. producers offer the same amount of a product that consumers want.

Which event will NOT cause the supply curve for kayaks to shift to the left? A. an increase in the costs of materials to build a kayak B. a decrease in the number of sellers of kayaks C. a decrease in the price of a kayak D. an increase in the taxes on kayaks

C. a decrease in the price of a kayak

Which of the following is the best example of substitutes? A. money and donuts B. chips and salsa C. macaroni and cheese D. hiking boots and athletic shoes E. DVD players and DVDs

D. Hiking boots and athletic shoes

Which of the following is the best example of substitutes? A. coffee and sugar B. chips and salsa C. macaroni and cheese D. butter and margarine E. DVD players and DVDs

D. butter and margarine

When quantity supplied is higher than quantity demanded

Surplus

T/F: A decrease in the price of milk will cause an increase in the demand for breakfast cereal.

True

T/F: One of the problems of a minimum wage is that it can create a surplus of workers.

True

T/F: Suppose the equilibrium price and quantity exchanged increase. The most consistent explanation for this observation is an increase in supply with no change in demand.

False

The demand for gasoline is rising. Which statement describes a possible cause? A. Consumers expect prices to rise in the near future. B. Commuters are switching from driving to public transportation. C. Drivers are purchasing more fuel-efficient cars. D. Incomes are falling. E. The government subsidizes the oil refineries.

A. Consumers expect prices to rise in the near future.

Which response is expected in the milk market if the price of chocolate chip cookies declines? A. Demand increases; quantity exchanged increases; and price increases. B. Demand increases; quantity exchanged increases; and price decreases. C. Demand decreases; quantity exchanged decreases; and price increases. D. Demand decreases; quantity exchanged decreases; and price decreases.

A. Demand increases; quantity exchanged increases; and price increases.

Consider the market for hamburgers. Which of the following will cause higher prices and a greater quantity of hamburgers exchanged? A. There is a doubling of the number of college students living in the area. B. Local pizza restaurants lower their prices and begin campus delivery services. C. Hamburger bun, lettuce, tomato and cheese prices decline. D. A disease wipes out half of the livestock in the United States supplying beef to restaurants.

A. There is a doubling of the number of college students living in the area.

Consider the market for hamburgers. Which of the following will cause higher prices and a greater quantity of hamburgers exchanged? A. There is a doubling of the number of college students living in the area. B. Local pizza restaurants lower their prices and begin campus delivery services. C. Hamburger bun, lettuce, tomato and cheese prices decline. D. A disease wipes out half of the livestock in the United States supplying beef to restaurants.

A. There is a doubling of the number of college students living in the area.

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which scenario would you expect to take place in the market? A. There would be a surplus of carrots. B. There would be a shortage of carrots. C. Farmers would switch from growing carrots to growing potatoes. D. The price floor would have no impact on the market because it is higher than the equilibrium price.

A. There would be a surplus of carrots.

Suppose that a major hurricane hits Florida, causing widespread damage to homes and businesses. If the legislature imposes price controls in order to keep reconstruction costs reasonable, which of these is the MOST likely result? A. a shortage of building materials B. a faster recovery from the storm C. a surplus of building materials D. rapid service at lumberyards

A. a shortage of building materials

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is this considered a market failure due to external benefits? A. because the number of people who obtain flu shots is less than the socially optimal quantity B. because too many people actually get the flu shot C. because flu shots are not 100% effective D. because flu shots are priced too high relative to the cost of producing them

A. because the number of people who obtain flu shots is less than the socially optimal quantity

T/F: Suppose you find $20. If you choose to use the $20 to go to the football game, then your opportunity cost of going to the game is zero.

False

There are new reports about the adverse effects of driving on the environment. In response, consumers decrease the frequency they drive their automobiles. This is a A. change in demand. B. change in supply. C. change in quantity demanded. D. change in quantity supplied.

A. change in demand.

There is an improvement in the technical efficiency of factory operations. In response, the local factory increases its production of machinery parts. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

A. change in supply.

There is migration into a community of workers with factory production skills. In response, the local factory increases its production of machinery parts. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

A. change in supply.

At market equilibrium A. producers offer the same amount of a product that consumers want. B. producers switch to substitution products. C. consumers switch to complementary products. D. consumers offer to buy stored surpluses at marked-down prices. E. producers store surpluses for times of shortage.

A. producers offer the same amount of a product that consumers want.

Suppose that a major drought causes a 30 percent reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____. A. shortage; rise; fall B. shortage; rise; rise C. surplus; fall; fall D. surplus; fall; rise

A. shortage; rise; fall

Suppose you observed that the price of gasoline has increased even as car owners have increased the amount of gasoline that they buy. You surmise that A. the demand for gasoline has increased. B. the demand for gasoline has decreased. C. the supply of gasoline has increased. D. the supply of gasoline has decreased. E. the government has manipulated the price of gasoline to benefit oil companies.

A. the demand for gasoline has increased.

Which of the following is most likely to be a normal good? A. tickets to a major league baseball game B. trips to the laundromat C. generic brand macaroni-and-cheese dinners D. bus rides E. used paperback books

A. tickets to a major league baseball game

If specialization and trade lead to a win-win situation in which both countries gain, why is there often opposition to trade agreements and globalization? A. A country may lose its competitive edge in some goods due to the other country's having an absolute advantage in the goods being traded. Countries with a lower opportunity cost of producing the good or service have the comparative advantage. B. A country may lose its competitive edge in some goods due to the other country's having a comparative advantage in the goods being traded. While trade is typically beneficial to both countries in the aggregate, individuals and groups within each country lose when their product faces competition from a country with a comparative advantage. C. Opposition mainly exists due to the tariff and nontariff barriers that exist. Countries with a lower opportunity cost of producing the good or service have the comparative advantage. D. There is never opposition to trade agreements because everyone in both countries will benefit from trade. Countries with a lower opportunity cost of producing the good or service have the comparative advantage.

B. A country may lose its competitive edge in some goods due to the other country's having a comparative advantage in the goods being traded. While trade is typically beneficial to both countries in the aggregate, individuals and groups within each country lose when their product faces competition from a country with a comparative advantage.

Which statement illustrates the law of demand? A. Lindsay offers to buy more sticks of chewing gum at $2 than at $1. B. Lindsay offers to buy more sticks of chewing gum at $1 than at $2. C. Marcus offers to sell more sticks of chewing gum at $2 than at $1. D. Marcus offers to sell more sticks of chewing gum at $1 than at $2.

B. Lindsay offers to buy more sticks of chewing gum at $1 than at $2.

Consider the market for printed textbooks. Which of the following will cause lower prices and a lower quantity of printed textbooks exchanged? A. There is a doubling of the number of college students living in the area. B. There is increased availability of electronic textbooks viewable on iPads and tablet computers. C. Technological improvements lower the costs of printing books. D. A fire destroys half the inventory of printing paper.

B. There is increased availability of electronic textbooks viewable on iPads and tablet computers.

Which factor would NOT cause the demand curve for herbal tea to shift to the right? A. a decrease in the price of lemons, a complement to herbal tea B. a decrease in the price of herbal tea C. new research showing that drinking herbal tea reduces the risk of illnesses D. All of these will shift the demand for herbal tea to the right.

B. a decrease in the price of herbal tea

The price of bagels and donuts increases. In response, producers of bagels and donuts offer more for sale. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

B. change in quantity supplied.

There is migration into a community of workers with factory production skills. In response, the local factory increases its production of machinery parts. This is a A. change in demand. B. change in supply. C. change in quantity demanded. D. change in quantity supplied.

B. change in supply.

Suppose that a customer's willingness to pay for a product is $5, and the seller's willingness to sell is $2. If the negotiated price is $3: A. consumer surplus is negative. B. consumer surplus is greater than producer surplus. C. producer surplus is negative. D. producer surplus is greater than consumer surplus.

B. consumer surplus is greater than producer surplus.

Bus tickets are often considered _____ goods because _____. A. inferior; as the price of a related good falls, demand for bus tickets increases B. inferior; as income rises, demand for bus tickets falls C. substitute; as the price of a related good falls, demand for bus tickets decreases D. substitute; as income rises, demand for bus tickets falls

B. inferior; as income rises, demand for bus tickets falls

Driving your car in a large city during rush hour causes externalities because: A. gasoline is scarce, and you must pay for it. B. it adds to road congestion and pollution. C. gasoline is a public good. D. your actions will benefit others, but you will be unable to charge them for the service.

B. it adds to road congestion and pollution.

In the market for online tutoring, there is an increase in the supply of online tutors during finals week, but there is an even larger increase in the demand for online tutors. These events will cause the equilibrium price of online tutoring to _____ and the equilibrium quantity to _____. A. fall; rise B. rise; rise C. rise; fall D. fall; fall

B. rise; rise

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect the: A. supply of flour to be unaffected. B. supply of flour to decrease. C. supply of flour to increase. D. demand for flour to decrease.

B. supply of flour to decrease.

The United States has an absolute advantage in making short-sleeve cotton golf shirts. Why do Indonesia and Bangladesh make these shirts and export them to the United States? A. Indonesia and Bangladesh can produce the shirts at a faster rate. The country with the lowest opportunity cost should produce the good. B. The United States can produce the shirts at a faster rate. The country with the lowest opportunity cost should produce the good. C. Indonesia and Bangladesh have a lower opportunity cost of producing the shirts than the United States. A country will produce the good if it has a lower opportunity cost of producing the good than the other country. Indonesia and Bangladesh, while smaller, have a comparative advantage in the production of shirts, making it profitable for both countries to specialize and ship shirts to the United States. D. The United States has a lower opportunity cost of producing the shirts than Indonesia and Bangladesh. The country with the lowest opportunity cost should produce the good.

C. Indonesia and Bangladesh have a lower opportunity cost of producing the shirts than the United States. A country will produce the good if it has a lower opportunity cost of producing the good than the other country. Indonesia and Bangladesh, while smaller, have a comparative advantage in the production of shirts, making it profitable for both countries to specialize and ship shirts to the United States.

Consider the market for hamburgers. Which of the following will cause lower prices and a greater quantity of hamburgers exchanged? A. There is a doubling of the number of college students living in the area. B. Local pizza restaurants lower their prices and begin campus delivery services. C. Prices decline for hamburger buns, lettuce, tomato and cheese. D. A disease wipes out half of the livestock in the United States supplying beef to restaurants.

C. Prices decline for hamburger buns, lettuce, tomato and cheese.

Consider the market for athletic apparel. Which of the following will cause lower prices and a greater quantity of athletic apparel and equipment exchanged? A. New medical studies demonstrate positive health benefits from regular exercise. B. There is a significant decrease in the price of jeans and sweaters. C. There is a reduction in the cost of cotton, synthetic fibers and other clothing inputs. D. The government places a tax on the sale of clothing.

C. There is a reduction in the cost of cotton, synthetic fibers and other clothing inputs.

Consider the market for whole wheat bread. Which of the following will cause lower prices and a greater quantity of whole wheat bread exchanged? A. Scientists discover new health benefits of eating whole wheat products. B. The price of white bread declines significantly. C. Union concessions result in lower labor costs of bakers and other bakery workers. D. Flour mills increase the cost of whole wheat flour purchased by bread bakeries.

C. Union concessions result in lower labor costs of bakers and other bakery workers.

T/F: A surplus would result from either an increase in supply or a decrease in demand.

True

There are new reports about the adverse effects of drinking energy drinks. In response, consumers decrease the frequency of energy drinks they purchase. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

C. change in demand.

There are new reports about the adverse effects of driving on the environment. In response, consumers decrease the frequency they drive their automobiles. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

C. change in demand.

The price of t-shirts increases. In response, consumers purchase fewer t-shirts. This is a A. change in demand. B. change in supply. C. change in quantity demanded. D. change in quantity supplied.

C. change in quantity demanded.

Which good is typically considered a public good? A. automobiles B. bottled water C. clean air D. french fries

C. clean air

Which of the following is the best example of complements? A. cookies and cake B. apple juice and orange juice C. gasoline and car D. Uber and Lyft E. coffee and tea

C. gasoline and car

The development of solar panels for home installation has improved due to technological advances and subsidies. These factors shift the supply curve to the _____ and result in the equilibrium price of solar panel installations to _____. A. left; fall B. left; rise C. right; fall D. right; rise

C. right; fall

Which pair MOST likely includes substitute goods? A. hot dogs and mustard B. ramen noodles and water C. soft drinks and lemonade D. pizza and soft drinks

C. soft drinks and lemonade

Market failure due to asymmetric information is illustrated in which situation? A. A company sells a product with harmful ingredients. The ingredients are listed on the label in small print. B. Consumers seek to buy a product because it tastes good, even though they know that it contains harmful ingredients. C. Consumers buy a product labeled as a foot cream, but they use it as an eye cream even though there is a warning on the label to use it only on feet. D. A company does not list all a product's ingredients on the label. Customers buy the product unaware that it contains harmful ingredients.

D. A company does not list all a product's ingredients on the label. Customers buy the product unaware that it contains harmful ingredients.

Consider the market for whole wheat bread. Which of the following will cause higher prices and a lower quantity of whole wheat bread exchanged? A. Scientists discover new health benefits of eating whole wheat products. B. The price of white bread declines significantly. C. Union concessions result in lower labor costs of bakers and other bakery workers. D. Flour mills increase the cost of whole wheat flour purchased by bread bakeries.

D. Flour mills increase the cost of whole wheat flour purchased by bread bakeries.

If bagels and doughnuts are substitute goods, then which scenario is likely to occur if the price of bagels is reduced? A. The demand curve for bagels will shift to the left. B. There will be a leftward movement along the bagel demand curve. C. The demand curve for doughnuts will shift to the right. D. The demand curve for doughnuts will shift to the left.

D. The demand curve for doughnuts will shift to the left.

Consider the market for athletic apparel. Which of the following will cause higher prices and a lower quantity of athletic apparel and equipment exchanged? A. New medical studies demonstrate positive health benefits from regular exercise. B. There is a significant decrease in the price of jeans and sweaters. C. There is a reduction in the cost of cotton, synthetic fibers and other clothing inputs. D. The government places a tax on the sale of clothing.

D. The government places a tax on the sale of clothing.

T/F: An increase in the price of bread will cause a decrease in the demand for butter.

True

T/F: Countries should specialize in producing those things in which they have comparative advantage.

True

Consider the demand for olive oil. What would happen to the demand for olive oil if a study confirming its beneficial health effects is published at the same time that an investigative report finds that much of the olive oil imported into the country is actually sunflower oil that has been dyed? A. We would expect demand to shift to the right. B. We would expect demand to shift to the left. C. We would expect demand not to change. D. We would expect demand to shift in each direction, but the final position will depend on which event has the bigger impact on demand.

D. We would expect demand to shift in each direction, but the final position will depend on which event has the bigger impact on demand.

Which statement is not correct? A. The sum of consumer and producer surplus increases as markets become more efficient. B. A reduction in total consumer and producer surplus indicates markets have become less efficient. C. When prices are below market equilibrium, the sum of consumer and producer surplus decreases. D. When prices are above market equilibrium, the sum of consumer and producer surplus increases.

D. When prices are above market equilibrium, the sum of consumer and producer surplus increases.

Which statement is not correct? A. The sum of consumer and producer surplus increases as markets become more efficient. B. A reduction in total consumer and producer surplus indicates markets have become less efficient. C. When prices are below market equilibrium, the sum of consumer and producer surplus decreases. D. When prices are above market equilibrium, the sum of consumer and producer surplus increases.

D. When prices are above market equilibrium, the sum of consumer and producer surplus increases.

Which of the following is most likely to be an inferior good? A. tickets to a major league baseball game B. branded clothes C. fresh fruit D. bus rides E. fancy vacations

D. bus rides

The price of Blu-ray movies increases. In response, consumers purchase fewer Blu-ray movies. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

D. change in quantity demanded.

The price of chocolate chip cookies decreases. In response, consumers purchase more chocolate chip cookies. This is a A. change in supply. B. change in quantity supplied. C. change in demand. D. change in quantity demanded.

D. change in quantity demanded.

The price of cupcakes increases. In response, producers of cupcakes offer more for sale. This is a A. change in demand. B. change in supply. C. change in quantity demanded. D. change in quantity supplied.

D. change in quantity supplied.

Which of these would NOT yield an external cost? A. building an airport next to a library B. smoking cigarettes in a restaurant C. partying on the front lawn until four in the morning D. helping an elderly person across the street

D. helping an elderly person across the street

The fundamental reason why supply curves slope upward is: A. decreasing benefits. B. decreasing costs. C. increasing benefits. D. increasing costs.

D. increasing costs.

If the demand for iPhones rises as incomes increase, then the iPhone is a(n) _____ good. A. inferior B. abnormal C. supply D. normal

D. normal

Which of the following is the best example of complements? A. cookies and cake B. apple juice and orange juice C. CDs and DVDs D. athletic shoes and sandals E. bread and butter

E. bread and butter

T/F: A surplus would result from either a decrease in supply or an increase in demand.

False

T/F: An increase in the price of bread will cause a decrease in the demand for bread.

False

T/F: An increase in the price of milk will cause a decrease in the demand for milk.

False

T/F: Talented people who are exceptional at everything also have a comparative advantage in everything.

False

T/F: A decrease in the price of milk will cause an increase in the demand for milk.

False

T/F: If a building is constructed on land that was donated for that purpose (i.e., the land was not purchased), then the economic cost of the building is the construction cost only.

False

T/F: If your friend offers to drive you to the store so you don't have to drive your own car, then your opportunity cost of going to the store is zero.

False

T/F: One of the costs of a minimum wage is that it creates a shortage of workers.

False

T/F: A decrease in the price of milk will cause an increase in the supply of ice cream.

True

T/F: A price floor set above the equilibrium price will result in quantity supplied exceeding quantity demanded.

True

T/F: A shortage would result from either a decrease in supply or an increase in demand.

True

T/F: If demand decreases for a particular good, then we can expect that the market price for that good will decrease and the quantity of the good sold in the market will decrease.

True

T/F: If markets are left unregulated by the government, then at the market equilibrium price the sum of consumer surplus and producer surplus is maximized.

True

T/F: If supply increases for a particular good, then we can expect that the market price for that good will decrease and the quantity of the good sold in the market will increase.

True

T/F: Suppose a customer's willingness to pay for a product is $80, and the seller's willingness to sell is $65. If the negotiated price is $70, then producer surplus is $5.

True

T/F: The following statement is an example of the law of demand: "The local sporting goods store is having a sale on sports equipment. I'm going to buy a new tennis racket now."

True

T/F: The measure of society's benefits due to a market transaction is called total surplus.

True

T/F: A price floor set above the equilibrium price will result in quantity supplied exceeding quantity demanded.

True

T/F: Allocative efficiency occurs when the mix of goods and services produced is the most desired by society.

True

T/F: An increase in the price of milk will cause a decrease in the demand for breakfast cereal.

True

T/F: An increase in the price of wheat and flour will cause a decrease in the supply of bread.

True

T/F: Countries should specialize in producing those things in which they have a comparative advantage.

True

T/F: Everyone has a comparative advantage in something, but not everyone has an absolute advantage in something.

True

T/F: Holding other things constant means identifying other relevant factors and fixing their value at a specified or constant level.

True

T/F: If demand decreases for a particular good, then we can expect that the market price for that good will decrease and the quantity of the good sold in the market will decrease.

True

T/F: If supply increases for a particular good, then we can expect that the market price for that good will decrease and the quantity of the good sold in the market will increase.

True

T/F: One of the problems of a minimum wage is that it can result in a surplus of workers.

True

T/F: Suppose a customer's willingness to pay for a product is $80, and the seller's willingness to sell is $65. If the negotiated price is $70, then producer surplus is $5.

True

T/F: Suppose the equilibrium price and quantity exchanged increase. The most consistent explanation for this observation is an increase in demand with no change in supply.

True

T/F: Talented people that are the best at everything have a comparative advantage in everything.

True

T/F: The following statement is an example of the law of demand: "The local record store has all their CDs on sale. I'm going to buy some right now."

True