Econ 1001 (test 1)

Which of the following is not scarce according to the economic​ definition? Gas. Tutorial services. Capital. Time. None of the above.

none of the above

What is the basis for​ trade?

Comparative advantage.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

Economists use models

to answer questions and analyze issues.

Economic data is used

to test models.

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good

will have a comparative advantage if it has a lower opportunity cost of producing that good.

We can show economic​ inefficiency:

with points inside the production possibilities frontier.

We can show economic​ efficiency:

with points on the production possibilities frontier.

In a market​ system, how does society decide what goods and services will be​ produced?

​Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

What do economists mean by the word​ "marginal"?

extra or additional

Deadweight loss is

the reduction in economic surplus resulting from a market not being in competitive equilibrium.

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

Suppose that France is currently producing 1 bottle of wine and 6 pounds of cheese and Germany is currently producing 3 bottles of wine and 6 pounds of cheese. ​ Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 7 pounds of cheese. After specialization and​ trade, France gains by consuming the same amount of wine and ___ additional​ pound(s) of cheese ​(enter a numeric response using an​ integer) and Germany gains by consuming the same amount of wine and __ additional​ pound(s) of cheese.

1 2

How can a country gain from specialization and​ trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

The figure to the right illustrates the​ trade-offs facing Ford Motor Company. The line in the graph is​ Ford's production possibilities frontier. If Ford uses all its resources to produce​ trucks, how many can it​ produce? __ thousand trucks per day. ​(Enter a numeric response using a real number rounded to one decimal​ place.) Suppose Ford is currently building 3 thousand cars per day. To build an additional 1 thousand​ cars, how many fewer trucks can be​ built? __ thousand fewer trucks per day. According to the​ graph, building 3 thousand cars per day and 4 thousand trucks per day is _______

8 1 technically inefficient

A normal good is:

A good in which the change in income is proportionately related to a change in demand for that good.

Suppose the economy whose PPF is shown on the right experiences economic growth. ​1.) Use the​ 3-point curved line drawing tool to show how growth affects the​ trade-offs the country faces between producing ships and food. ​2.) Use the point drawing tool to draw and label a point on the new PPF that shows the economy producing more of both goods. Label this point​ 'B'. Carefully follow the instructions above and only draw the required objects. Which of the following may have caused the shift you have​ drawn? ​(Check all that​ apply.) A. An increase in the capital stock. Your answer is correct. B. A larger labor force. Your answer is correct. C. Balanced production between ships and food. D. The achievement of full employment. E. Advances in technology.

A. An increase in the capital stock. Your answer is correct. B. A larger labor force. E. Advances in technology.

What role do they play in the working of a market​ system? Private property​ rights:

A. encourage a significant number of people to be willing to risk funds by investing them in business. B. encourage firms to spend money on research and development.

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts:

A. to make their decisions based on the law. B. to make their decisions free of influence from other parts of the government. C. to make their decisions free of intimidation by criminal gangs. D. to make their decisions free of influence from people with powerful political connections.

A market demand is calculated by which of the following methods?

Adding up the quantity demanded of all individuals at each price point.

When does allocative efficiency​ occur?

Allocative efficiency occurs when production is in accordance with consumer preferences.

How does consumer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, consumer surplus ___​, and as the price of a good​ falls, consumer surplus ___.

As the price of a good​ rises, consumer surplus decreases​, and as the price of a good​ falls, consumer surplus increases.

Why are models based on​ assumptions?

Because models have to be simplified to be useful.

A columnist for Forbes argues​ that: "Even if China is always better than Spain at producing​ textiles, if the best thing that Spain could be doing is textiles then​ that's what Spain should be​ doing." ​Source: Tim​ Worstall, "Inditex's Zara and the Power of Comparative​ Advantage," forbes.com, July​ 7, 2015. What does the columnist mean by writing that China​ "is always better than​ Spain" in producing textiles​ (which include​ clothing, sheets, and similar​ products)? Is the columnist arguing that Spain has an absolute advantage over China in producing​ textiles, a comparative​ advantage, or​ both? The columnist notes​ that, in​ fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is​ accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.

China can produce textiles at a lower cost in terms of resources than Spain can. A comparative advantage in producing textiles. Spain must be able to produce textiles at a lower opportunity cost than China can.

What do economists mean by​ scarcity?

Economists mean that unlimited wants exceed limited resources.

What are the two main categories of participants in​ markets?

Firms and households.

In a market​ system, what determines how goods and services will be​ produced?

Firms determine how goods and services will be produced.

Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Who has the comparative advantage in producing wine and who has the comparative advantage in producing​ cheese?

France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese.

According to the law of demand, there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward.​ Why?

When the price of a good​ increases, consumers' purchasing power​ decreases, and they cannot buy as much of the good as they did prior to the price change.

Which of the following would shift the supply curve for cigarettes?

Higher costs of tobacco production

Which participants are of greatest importance in determining what goods and services are​ produced?.

Households.

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

Why is the demand curve referred to as a marginal benefit​ curve?

It shows the willingness of consumers to purchase a product at different prices.

Why is the supply curve referred to as a marginal cost​ curve?

It shows the willingness of firms to supply a product at different prices.

Suppose the United Kingdom and Norway both produce oil and fish​ oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a​ day, measured in thousands of​ barrels, using the same amounts of capital and​ labor: Who has the comparative advantage Can these two countries gain from trading oil and fish​ oil?

Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal. These countries cannot gain from trade because neither has a comparative advantage producing either good.

Which of the following statements about **normative analysis** is​ correct?

Normative analysis is concerned with what **ought to be.**

Which​ point(s) are​ inefficient? Briefly explain why.

Point V because production there is not using all available resources.

At which point is the​ country's future growth rate likely to be the​ highest? Briefly explain why.

Point W because it is where the most resources are used to produce capital goods.

Which​ point(s) are​ unattainable? Briefly explain why.

Point Z because it is outside the production possibilities frontier.

Which​ point(s) are​ efficient? Briefly explain why.

Points W​, X​, and Y because this is where maximum output is produced with available resources.

Which of the following statements about **positive analysis** is​ correct?

Positive analysis is concerned with **what is.**

When does productive efficiency​ occur?

Productive efficiency occurs when a good or service is produced at the lowest possible cost.

What is comparative​ advantage?

The ability to produce a good or service at a lower opportunity cost than other producers.

What is absolute​ advantage?

The ability to produce more of a good or service than competitors using the same amount of resources.

Tarantino's pizza and Mackenzie River pizza are substitute goods in Pizzatown. Ceteris paribus, if the price of Mackenzie River pizza rises, what can we expect to happen in the Pizzatown pizza market?

The demand for Tarantino's pizza will increase.

Orangeland has a lot of orange groves and a high demand for oranges. Which of the following scenarios would make it difficult to find oranges in local Orangeland stores?

The government sets a price ceiling below the equilibrium price.

What are the implications of this idea for the shape of the production possibilities​ frontier?

The production possibilities frontier will be bowed outward.

Economic efficiency is

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

McDonald's eliminates ​$1.00 off coupons. This will cause:

a movement along the demand curve for​ McDonald's Big Mac hamburgers.

Indicate whether each of the following is primarily a microeconomic or a macroeconomic a. The effect of higher cigarette taxes on the quantity of cigarettes sold. b. The effect of higher income taxes on the total amount of consumer spending. c. The reasons for the economies of East Asian countries growing faster than the economies of​ sub-Saharan African countries. d. The reasons for low rates of profit in the airline industry.

a) This is a microeconomic issue. b) This is a macroeconomic issue. c)This is a macroeconomic issue. d) This is a microeconomic issue.

Indicate which of the following statements represent positive analysis and which represent normative analysis. a. A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. b. The federal government should spend more on AIDS research. c. Rising paper prices will increase textbook prices. d. The price of coffee at Starbucks is too high.

a) This represents positive analysis. b) This represents normative analysis. c) This represents positive analysis. d) This represents normative analysis.

If a surplus exists in a market we know that the actual price is

above the equilibrium price, and the quantity supplied is greater than the quantity demanded

Ceteris paribus, an increase in the price of Pepsi could be caused by:

an increase in the demand of Pepsi.

You have a love of cinnamon bear gummies and are willing to pay $2.00/lb for them. The equilibrium price of cinnamon bear gummies $2.25. Which of the following could generate a price where you would buy cinnamon bear gummies?

an increase in the supply

If a shortage exists in a​ market, we know that the actual price is:

below the equilibrium​ price, and the quantity demanded is greater than the quantity supplied.

The production possibilities frontiers depicted in the diagram to the right illustrate

both the labor force and capital stock increasing.

from the list below select the variable that will cause the demand curve to shift

consumer income

complete the following statement "when there is a shortage of a good:

consumers compete against one another by bidding the price upward

Computer printers and printer ink cartridges are complements. If the price of printers decreases, the:

demand for ink cartridges will increase

The price of Burger​ King's Whopper hamburger increases. This will cause:

demand for​ McDonald's Big Mac hamburgers to increase.

The U.S. economy enters a period of rapid growth in incomes. This will cause:

demand for​ McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

The production possibilities frontier will shift outward

if technological advances occur

It's possible to buy many books either as print , or physical , books or as digital books . If the price of digital books rises , what would you expect to happen to the demand for print books ? If many book readers consider print books and digital books to be substitutes , then an increase in the price of digital books will : decrease the quantity demanded for print books , causing a downward movement along the demand curve for print books . decrease the demand for print books , shifting the demand curve for print books to the left . increase the quantity demanded for print books , causing an upward movement along the demand curve for print books . increase the demand for print books , shifting the demand curve for print books to the right .

increase the demand for print books , shifting the demand curve for print books to the right .

On the diagram to the​ right, movement along the curve from points A to B to C illustrates

increasing marginal opportunity costs.

Using the same amount of​ resources, suppose that Nicaragua can produce twice as much coffee as Colombia.​ Nevertheless, Colombia could still have the comparative advantage in producing coffee if

it is even less efficient than Nicaragua in the production of goods other than

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

Consumer and producer surplus measure the​ _____ benefit rather than the​ _____ benefit.

net, total

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity.

Two​ neighbors, countries A and​ B, produce books and​ blankets, among other goods and services.​ However, Country A produces more of both goods than country B. A student of​ economics, Maya, also notes that in both​ countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B.

she assumes that country​ A's population is no larger than country​ B's.

KFC lowers the price of a bucket of fried chicken. This will:

shift the demand for McDonald's Big Mac hamburgers to the left.

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.

the distinction between substitutes and complements is:

substitute goods are used for the same purposes while complementary goods are used together.

Price Quantity of Soup Demanded Price per bowl bowls of soup per month per salad 1 20 1 1 40 2 2 10 1 2 30 2 Imagine that you own a restaurant. The accompanying table shows different prices of soup and the corresponding number of bowls of soup that were purchased at your restaurant last month. At different times, you also charges different prices for salads. According to these data, soup and salad are:

substitutes goods

Because economic surplus is the ____ of the benefit to firms and the benefit to​ consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this​ reason, it is appropriate to label economic surplus as ____ surplus.

sum, social

One of the great benefits of trade is

that it makes it possible for society to become better off by increasing its consumption.

Marginal benefit is

the additional benefit from consuming one more unit.

Marginal cost is

the additional cost of producing one more unit.

From the list​ below, select the variable that will cause the supply curve to​ shift:

the cost of raw materials

Netflix subscriptions and Hulu Plus subscriptions are substitutes. Ceteris paribus, if the price of Hulu Plus subscription falls:

the demand for Netflix subscriptions decreases.

Consumer surplus is

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Producer surplus is

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

What must happen to the market equilibrium if the demand for a product increases while the supply of the same product decreases?

the equilibrium price increases

In colonial​ America, the population was spread thinly over a large​ area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a​ result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money.

the farmers gained access to new markets and customers. Using comparative​ advantage, the farmers​ specialized, producing those goods for which they had lower opportunity cost. As they traded for other​ goods, their incomes and living standards increased.

Opportunity cost is

the highest valued alternative that must be given up to engage in an activity.

Economists believe that an activity should be continued up to the point where

the marginal benefit from the activity is equal to the marginal cost.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives,

the policies are consistent with economic incentives.

Suppose there is a shortage in the market for Hula-Hoops. Ceteris paribus, we would expect to observe___________ as the market moved to equilibrium.

the price of Hula-Hoops rising.

What are private property​ rights? Private property rights​ are:

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property.

Economic surplus is

the sum of consumer surplus and producer surplus.

The distinction between a normal and an inferior good is

when income​ increases, demand for a normal good increases while demand for an inferior good falls.

Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____.

​consumer; producer;​ maximum; equilibrium