Econ 102 Exam 1 Ch 1-3

Use the following production possibilities frontier for a country to answer the following questions. Part 2 Which​ point(s) are​ unattainable? Briefly explain why.

Point E because it is outside the production possibilities frontier.

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

Points B​, C​, and D because this is where maximum output is produced with available resources.

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the​ economy?

The country is operating on its production possibilities frontier.

If demand decreases and supply​ increases, which of the following will definitely​ occur?

The equilibrium price will decrease.

If demand and supply both​ increase, which of the following will definitely​ occur?

The equilibrium quantity will increase.

Suppose the equilibrium price and equilibrium quantity of gold both decrease. Which of the following would produce such a​ change? Part 2

The market demand curve for gold could have decreased.

Can these two countries gain from trading oil and fish​ oil?

These countries cannot gain from trade because neither has a comparative advantage producing either good.

Why do entrepreneurs play a key role in a market​ system?

They bring together factors of production.

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish."

This statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

Identify whether each of the following statements describes a change in supply or a change in the quantity supplied.

To take advantage of high prices for snow shovels during a very snowy​ winter, Alexander​ Shovels, Inc., decides to increase output. A change in quantity supplied. Part 3 b. The success of​ Apple's iPod leads more firms to begin producing digital music players. A change in supply. Part 4 c. In the six months following Hurricane​ Katrina, production of oil in the Gulf of Mexico declined by 25 percent. A change in supply.

The basis for trade is comparative​ advantage, not absolute advantage.

True

c. What problems might African farmers have because they lack secure property​ rights?

Without secure property​ rights, it is harder for farmers to borrow because they cannot use their land as collateral. B. Without secure property​ rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the​ farms' productivity. C. Without secure property​ rights, farmers are not able to obtain funds by selling some of their land. D. ---All of the above.

Which of the following would not shift the demand curve for a good or​ service?

a change in the price of the good or service

A production possibilities frontier​ (PPF) is

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Which of the following is the​ textbook's definition of a supply​ curve?

a curve that shows the relationship between the price of a product and the quantity of the product supplied

Suppose that the curves in the figure to the right represent two supply curves for traditional wings​ (basket of​ six) at Buffalo Wild Wings. Part 2 The movement from point A to B on S1 is caused by

a decrease in the price of baskets of traditional wings.

Which of the following events would shift the supply of smartphones to the​ right?

a decrease in the price of inputs used to produce smartphones

An unexpected frost in the orange groves of California would cause

a decrease in the supply of orange​ juice, increasing the equilibrium price.

A good for which demand increases as income rises is​ ________, and a good for which demand increases as income falls is​ ________.

a normal​ good; an inferior good

Which of the following is the​ textbook's definition of a supply​ schedule?

a table that shows the relationship between the price of a product and the quantity of the product supplied

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.

Market price is determined by

both supply and demand.

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the

ceteris paribus condition.

Complete the following​ statement: ​"When there is a shortage of a good ___ The process continues until the market is finally in​ equilibrium."

consumers compete against one another by bidding the price upward.

Refer to the​ diagram: ​1.) Use the line drawing tool to draw a demand curve that shifts to the right. Label this line ​'D2​'. ​2.) Use the line drawing tool to draw a supply curve that shifts to the right by more than the demand line. Label this line ​'S2​'. ​3.) Use the point drawing tool to identify the new point of equilibrium. Label this point. With these​ shifts, the equilibrium price will decrease.

decrease

Suppose the price of a substitute to LCD televisions falls. What effect will this have on the market equilibrium for LCD​ TVs? The equilibrium price of LCD TVs will

decrease and the equilibrium quantity will decrease.

After Russia seized what had formerly been the Ukrainian territory of Crimea in February​ 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted​ that, ​"If sanctions push Russia onto a path of greater​ self-reliance, its manufacturing and service industries will surely grow​ faster...." ​Source: Anatole​ Kaletsky, "Reasons to Welcome a Ukraine​ Deal," New York Times​, September​ 18, 2014. Part 2 If the columnist is correct about the effect of the​ sanctions, then, in the long​ run, the sanctions will

decrease the economic​ well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners.

Refer to the diagram to the​ right: Part 2 Use the line drawing tool to draw a demand curve shifting to the left. Label this line ​'D2​'. With this​ shift, equilibrium price will ___. and equilibrium quantity will ___.

decrease, decrease

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

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

In economic​ terminology, the inputs used to

factors of production.

If country ABC can produce a unit of good 1 with fewer resources than can country​ XYZ, it is correct to say that country ABC

has an absolute advantage in producing good 1.

If a country has a comparative advantage in the production of a​ good, then that country

has a lower opportunity cost in the production of that good.

Consider the market for​ chicken, illustrated in the figure to the right. The market is initially in equilibrium at a price of P1 and at a quantity of Q1. Part 2 Suppose the supply curve shifts to the right from S1 to S2 and the demand curve shifts to the right from D1 to D2. Note that in the figure the shift in demand is larger than the shift in supply. Part 3 As a result of these​ changes, the new equilibrium price will be _____, and the new equilibrium quantity will be _____.

higher, higher

Two key groups participate in markets. A ___ consists of all the individuals in a home. ___are suppliers of goods and services. We can use a simple economic model called the ___ to see how participants in markets are linked.

household, Firms, circular-flow diagram

What is the outcome of enforcing contracts and property rights in a market​ system?

increased economic activity

In the diagram to the​ right, when demand ___​, a ____ develops at the original price. Equilibrium price will ___ and equilibrium quantity will ___ as a new equilibrium is established.

increases, shortage, rise, rise

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier

is not physically possible.

As a result of new firms entering the MP3 player market​, the new equilibrium price will be _____, and the new equilibrium quantity will be _____.

lower, higher

In​ economics, the term capital refers to

physical capital, such as machinery, that is used to produce other goods.

Refer to the graph. A change in demand is illustrated by the move from​ ________, and a change in quantity demanded is illustrated by a movement from​ ________.

point C to point A​; point A to point B

According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity?

prices

The Scottish philosopher Adam Smith argued in 1776 that

prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

Absolute advantage is the ability of an​ individual, a​ firm, or a country to

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

The difference between a change in supply and a change in the quantity supplied is that the latter is

produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price.

The primary difference between product markets and factor markets is that

product markets are markets for​ goods, while factor markets are markets for factors of production-​labor, ​capital, natural​ resources, and entrepreneurial ability.

What is the law of​ demand? The law of demand is the

rule​ that, holding everything else​ constant, when the price of a good​ falls, the quantity demanded will​ increase, and when the price of a good​ rises, the quantity demanded will decrease.

In the table​ below, fill in the missing blanks to complete the summary of the effects of changes in demand and supply on equilibrium price and quantity. Part 2

see table

In the diagram to the​ right, when the price is ​$29 per​ player, the amount of the shortage is 56 million players per month.

shortage, 56. When the quantity supplied is greater than the quantity​ demanded, there is a surplus in the market. To calulate the​ surplus, subtract quantity demanded from quantity supplied. When the quantity demanded is greater than the quantity​ supplied, there is a shortage in the market. To calulate the​ shortage, subtract quantity supplied from quantity demanded.

The figure to the right illustrates the U.S. market for rugs made in a particular foreign country. Suppose the market price of rugs is ​$1,000. Part 2 At a price of ​$1,000​, there will be a ___ of rugs. Part 3 To reach an​ equilibrium, the price of rugs in this market must ___.

shortage, rise

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity.

smaller

In the​ diagram, when supply increases​, a _____ develops at the original price. Equilibrium price will _____ and equilibrium quantity will _____ as a new equilibrium is established.

surplus, fall, rise

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

technological advances in the tank industry.

One of the great benefits of trade is

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

When the demand curve shifts to the​ right,

the equilibrium price and quantity will both increase.

In a free​ market, the actions people take are largely determined by

the motivation of financial reward.

Suppose instead that the demand curve shifts to the right. ​ Then, relative to the initial market​ equilibrium,

the new equilibrium price would be higher and the new equilibrium quantity would be higher.

When economists speak of a surplus​, they mean a situation in which

the quantity supplied exceeds quantity demanded. B. the market price is above the equilibrium price. C. firms have unsold goods piling up. All of the above

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.

According to the law of​ supply,

there is a positive relationship between price and quantity supplied. as the price of a product​ increases, firms will supply more of it to the market.

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

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

What is the role of an​ entrepreneur?

to operate a business that produces a good or service B. to take risks C. to bring together the factors of production—​labor, ​capital, and natural resources D. ---All of the above.

In the diagram to the​ right, point G indicates an

unattainable result.

In discussing dividing up household​ chores, Emily​ Oster, an economist at the University of​ Chicago, advises​ that: ​"No, you​ shouldn't always unload the dishwasher because​ you're better at​ it." ​Source: Emily​ Oster, "The Wrong Person Is Probably Doing the Dishes in Your​ Home," Slate​, November​ 21, 2012. Part 2 Even if you are better at unloading the dishwasher than your​ spouse, you​ shouldn't always be the one to unload it because

you may be even better at some other household task and must consider the opportunity cost.

A perfectly competitive market is a market that meets the conditions of

​(1) many buyers and​ sellers, (2) all firms selling identical​ products, and​ (3) no barriers to new firms entering the market.

With respect to​ consumption, individuals and countries

​can, through​ trade, consume beyond their production possibilities frontiers.

A free market is a market with​ ________ government restrictions on how a good or service can be produced or sold and with​ ________ government restrictions on how a factor of production can be employed.

​few; few

Goods and services that can be used for the same purpose are​ ________, and goods and services that are used together are​ ________.

​substitutes; complements

In a competitive​ market, firms can dictate what the equilibrium price of a good or a service will be.

False

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

Firms and households.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system?

For markets to​ work, people must be free to pursue their​ self-interest.

Identify whether each of the following transactions will take place in the factor market or in the product market and whether households or firms are supplying the good or service or demanding the good or service.

George buys a Tesla Model S. Part 3 This takes place in the product market. Part 4 The household demands the good and the firm supplies the good. Part 5 Tesla increases employment at its Fremont plant. Part 6 This takes place in the factor market. Part 7 The households supply the labor and the firm demands the labor. Part 8 George works 20 hours per week at​ McDonald's. Part 9 This takes place in the factor market. Part 10 The household supplies the labor and the firm demands the labor. Part 11 George sells land he owns to​ McDonald's so it can build a new restaurant. Part 12 This takes place in the factor market. Part 13 The household supplies the factor of production and the firm demands the factor of production.

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

Households.

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 in producing​ oil?

Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal.

Does either country have an absolute advantage in producing both​ goods?

Neither country has an absolute advantage in both goods because the United States can produce more boots but Canada can produce more shirts.

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

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

Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1​ hour, he can mow 2 lawns or trim 5 bushes. Part 2 Use the line drawing tool to graph​ Tom's production possibilities frontier given he has 4 hours to devote to lawn services. Properly label this line. Tom's opportunity cost of mowing lawns in terms of trimming bushes is ____ trimmed bushes per mowed lawn.

2.50

Refer to the graph. What is the opportunity cost of moving from point B to point C​?

20 sedans

Assume the figure to the right illustrates the market for houses for sale in a small city. Part 2 Suppose the market price of houses is ​$200,000. How large will the resulting surplus​ be? Part 3 At a price of ​$200,000​, there will be 400 surplus houses. ​ (Enter your response as a whole​ number.) Part 4 What is the equilibrium price of​ houses? The equilibrium price is ​$150000. ​(Enter your response as a whole​ number.)

400, 150000

Consider the market for​ gasoline, illustrated in the figure to the right. Part 2 The equilibrium quantity of gasoline is ___ million gallons ​(enter a numeric response using a real number rounded to two decimal​ places) and the equilibrium price is ​$___ per gallon. Part 3 If instead the market price were ​$3.25​, then there would be a ___ of ___ million gallons.

5, 2.50, surplus, 3

The production possibilities frontiers in the figure to the right show how many bananas and coconuts you​ (Y) and your neighbor​ (N) can consume without trade. Suppose you are initially consuming 5 bananas and 4 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Part 2 ​Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. Part 3 You give your neighbor half of your production for half of what he produces. ​(Enter all responses as​ integers.) If you trade with your​ neighbor, then you will have _____ additional​ coconut(s) after the trade and _____additional​ banana(s). Part 4 At the same​ time, your neighbor will be able to consume _____additional​ banana(s) and will be _____ as a result of trade. ...

8, 10, 10, better off

Indicate which of the following would cause a movement from point A to C. ​(Check all that​ apply.)

A decrease in worker productivity. An increase in input prices.

From the PPFs shown above it can be determined that the opportunity cost of oil is lower in country ___. Part 3 Given the comparative opportunity costs as revealed by the PPFs shown​ above, the comparative advantage for country B lies in ____. Part 4 After these two countries specialize and trade with each​ other, country A will be importing ____.

A, corn, corn

Which of the following would cause a shift in the demand curve from point A to point B​?

An increase in income​ (normal good). B. An increase in the price of a substitute good. C. A decrease in income​ (inferior good).

Which of the following illustrates the law of​ supply?

An increase in price causes an increase in the quantity​ supplied, and a decrease in price causes a decrease in the quantity supplied.

Which of the following events would create economic​ growth, that​ is, shift the production possibilities frontier​ outward?

An increase in the available natural resources. B. An increase in the available labor. C. An increase in technology that affects the production of both goods. D. ---All of the above.

Which of the following events would cause the supply curve to decrease from S1 to S2​?

An increase in the price of inputs.

b. Which of the following statements is​ true?

By protecting private property​ rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.

What is an​ entrepreneur?

Entrepreneurs operate businesses that produce goods and services.

An increase in demand causes an increase in the equilibrium price. The increase in equilibrium price will then cause an increase in supply.

False

If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and​ grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other.

False

According to an article in the Economist​ magazine: ​"In all rich​ countries, property rights are secure...Legally recognising land ownership has boosted​ farmers' income and productivity in Latin America and Asia...More than​ two-thirds of​ Africa's land is still under customary​ tenure, with rights to land rooted in communities and typically neither written down nor legally​ recognized." ​Source: "Title to​ Come: Property Rights Are Still Wretchedly Insecure in​ Africa," Economist​, July​ 16, 2016. Part 2 a. Which of the following statements regarding secure property rights is​ true?

Property rights provide incentives for people to maintain and increase the value of the property they own.

Suppose initially that the United States is consuming 18 boots and 2 shirts and Canada is consuming 4 boots and 12 ​shirts, as indicated in the figure. ​ Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In​ particular, suppose the United States trades Canada half of its production for half of what Canada produces.

The United States will have ___16____ additional​ shirt(s) after the trade ​(enter a numeric response using an​ integer) and __0__ additional​ boot(s). Part 8 At the same​ time, Canada will be able to consume __6__ additional​ shirt(s) as a result of the trade and __14__ additional​ boot(s).

Using the same amount of​ resources, the United States and Canada can both produce lumberjack shirts and lumberjack​ boots, as shown in the production possibilities frontiers in the figure to the right. Part 2 ____ has a comparative advantage in producing lumberjack boots. Part 3 ____ has a comparative advantage in producing lumberjack shirts.

The United States, Canada

Following below are four graphs and four market​ scenarios, each of which would cause either a movement along the supply curve for premium bottled water or a shift of the supply curve. Match each scenario with the appropriate diagram.

a. A decrease in the supply of sports​ drinks: 4. Part 3 b. A drop in the average household income in the United States from​ $56,000 to​ $52,000: 3. Part 4 c. An improvement in the bottling technology for premium bottled​ water: 2. Part 5 d. An increase in the prices of electrolytes used in premium bottled​ water: 1.

Below are four supply curve​ diagrams, each of which represents a change in supply or a change in quantity supplied.

a. To take advantage of high prices for snow shovels during a snowy​ winter, Alexander​ Shovels, Inc., decides to increase output. 4. Part 3 b. The success of Nike and Adidas athletic shoes leads more firms to begin producing athletic shoes. 3. Part 4 c. In the six months following the Japanese earthquake and tsunami in​ 2011, production of automobiles in Japan declined by 20 percent. 1.

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.

The primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights?

an independent court system