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econ 202 exam 1

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In order to be useful as a signal in a market with information asymmetry, the signal must be ________.

difficult to obtain

Which of the following would shift a nation's production possibilities frontier outward?

discovering a cheap way to convert sunshine into electricity

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 The opportunity cost for Dylan to make a shirt is

0.75

Scarcity means that A. We must find ways to deal with that scarcity. B. We must make choices and give up things we really want. C. Figure out the best set of social systems to address scarcity. D. All of the above. E. A and B above.

(T/F) Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

False

(T/F) Smoking in restaurants is generally a bad idea because of the diseases caused by passive smoking.

False

(T/F) The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

False

(T/F) The best solution to water pollution is to make the responsible people clean the water and return it to its natural state

False

(T/F) The government can be relied on to efficiently solve problems associated with pollution through (Pigovian) taxes.

False

(T/F) The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a complementary product.

False

(T/F) The point of the video is that the government can seldom enhance economic efficiency.

False

(T/F) The social problem of smoking in restaurants is caused because smokers want to pollute the air, causing harm to people around them.

False

(T/F)All else equal, as the price of a product falls, the quantity supplied increases.

False

(T/F)The total amount of producer surplus in a market is equal to the area below the supply curve.

False

Due to adverse selection, very few lemons will be sold in the market for used cars.

False

If marginal cost is above the average variable cost, then average variable cost is decreasing.

False

If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.

False

The marginal cost curve is U-shaped because of the law of increasing opportunity costs.

False

The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services.

False

When voluntary exchange takes place, both parties gain from the exchange.

False True

When voluntary exchange takes place, both parties gain from the exchange.

False True (Correct)

Which of the following is a normative economic statement?

Farmers should not be allowed to grow and sell genetically-modified crops.

Economics teaches us that people

Fundamentally do not care about others in society. Fundamentally want more goods and that is the best way to behave. Fundamentally want more goods and that is unfortunate, but real. Fundamentally want more goods.(Correct ) A and B above.

Economics teaches us that people

Fundamentally want more goods.

Which of the following activities can give rise to a positive externality? Jogging every morning Consuming herbal products Getting a flu vaccination Buying a pair of gloves

Getting a flu vaccination

In 2011, Microsoft filed a complaint with the European Commission accusing Google of taking steps to monopolize the Internet search engine business. Microsoft's primary complaint was that

Google was using its dominant position as an Internet search engine to exclude competitors.

Which of the following is an implication of the Coase Theorem?

Government intervention is not always necessary to solve externality problems.

Economics teaches us that people

Which of the following is true of an extensive-form game?

It involves sequential decision making by the players.

What is regulatory capture?

It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.

True

What does the slope of the budget constraint mean intuitively? What tradeoff does it represent?

Prices and Income restrict the choices consumers can make; illustrates what is given up with each decision made

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

True

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.

True

A normal good is a good for which the demand increases as income decreases, holding everything else constant.

True False

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

True False

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

True False

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

True False

A normal good is a good for which the demand increases as income decreases, holding everything else constant.

True False (Correct)

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

True False (Correct)

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

True False (Correct)

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

True False (Correct)

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True False

An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant

True False

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

True False

Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

True

An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for labor.

True

Higher wages that compensate workers for unpleasant aspects of a job are called compensating differentials.

True

If a state requires all drivers to buy auto insurance, the problem of adverse selection is eliminated.

True

Increases in population shift the market supply curve for labor to the right.

True

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

True

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals.

True False

An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant

True False (Correct)

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

True False (Correct)

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True (Correct) False

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals.

True (Correct) False

Which of the following will lead to a change in the opportunity cost of buying a pen and pencil

a twofold increase in the price of pens and a threefold increase in the price of pencils

The extra cost associated with undertaking an activity is called

foregone cost. opportunity cost. marginal cost. net loss.

The extra cost associated with undertaking an activity is called

foregone cost. opportunity cost. marginal cost. (Correct) net loss.

A merger between the Ford Motor Company and General Motors would be an example of a

horizontal merger.

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

horizontal. curvilinear. vertical. downward sloping.

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

horizontal. curvilinear. vertical. (Correct) downward sloping.

Firms use information on labor's marginal revenue product to determine

how many workers to hire at each wage rate.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price. how responsive suppliers are to price changes. how responsive sales are to a change in buyers' incomes. how responsive sales are to changes in the price of a related good.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price. (Correct) how responsive suppliers are to price changes. how responsive sales are to a change in buyers' incomes. how responsive sales are to changes in the price of a related good.

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes.

By definition, economics is the study of

how to make money in the stock market. how to make money in a market economy. the choices people make to attain their goals, given their scarce resources. supply and demand

Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly lemons at this price. What is the term used to describe this situation?

adverse selection

Which of the following will not cause the labor demand curve to shift to the right?

an increase in the market wage rate

A decrease in the wage rate causes

an increase in the quantity of labor demanded.

The presence of a positive externality in a market leads to ________.

an underproduction of the good

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

income. supply. its price. tastes and preferences.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

income. supply. its price. (Correct ) tastes and preferences.

law of demand

increase in price leads to decrease in quantity demanded (movement along the demand curve)

law of supply

increase in price leads to increase in quantity supplied (movement along supply curve)

If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch will

increase the demand for the Gear S2.

If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch wil

increase the quantity demanded for the Gear S2. increase the quantity demanded for the Apple Watch. increase the demand for the Gear S2. decrease the demand for the Apple Watch.

If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch wil

increase the quantity demanded for the Gear S2. increase the quantity demanded for the Apple Watch. increase the demand for the Gear S2.(Correct ) decrease the demand for the Apple Watch.

As the number of available substitutes increases, the price elasticity of demand for a good:

increases

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

inelastic.

Economic models do all of the following except

answer economic questions. portray reality in all its minute details. make economic ideas explicit and concrete for use by decision makers. simplify some aspect of economic life.

Economic models do all of the following except

answer economic questions. portray reality in all its minute details. (Correct ) make economic ideas explicit and concrete for use by decision makers. simplify some aspect of economic life.

The Clayton Act prohibited

any merger if its effect was to substantially lessen competition or create a monopoly

The public choice model

applies economic analysis to government decision making.

According to public choice theory, policymakers

are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

The public choice model assumes that government policymakers

are likely to pursue their own self-interests, even if their self-interests conflict with the public interest.

Economists assume that individuals

are rational and respond to incentives

Economists assume that individuals

are rational and respond to incentives.

Economists assume that individuals

are rational and respond to incentives. will never take actions to help others. prefer to live in a society that values fairness above all else. behave in unpredictable ways

Economists assume that individuals

are rational and respond to incentives. (Correct) will never take actions to help others. prefer to live in a society that values fairness above all else. behave in unpredictable ways

At low wages, the labor supply curve for most people slopes upward because

as wages increase the opportunity cost of leisure increases.

Signaling takes place in markets with ________.

asymmetric information

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is

asymmetric information

On a shopping trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was $79.95. When she brought the coat to the store's sales clerk, Melanie was told that the coat was on sale, and she would pay 20 percent less than the price on the tag. After the discount was applied, Melanie paid $63.96, $15.99 less than the original price. The value of Melanie's consumer surplus from this purchase is

at least $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she pays, but she could have be willing to pay more than $79.95 for the coat.

If the marginal cost curve is below the average variable cost curve, then

average variable cost is decreasing.

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely

demand function budget constraint(Correct) indifference curve demand schedule

normal goods

demand increases as income increases

demand

describes the behavior of consumers in the market

supply

describes the behavior of sellers in the market

Making "how much" decisions involves

determining the additional benefits and the additional costs of that activity

Making "how much" decisions involves

determining the additional benefits and the additional costs of that activity.

Public goods are ________ in consumption.

non-excludable and non-rival

A Nash equilibrium occurs when ________.

none of the players can increase their payoffs by choosing a different strategy

A decrease in the price of either good will cause a consumer's budget constraint to:

shift rightward. pivot leftward. shift leftward. pivot rightward.

A decrease in the price of either good will cause a consumer's budget constraint to:

shift rightward. pivot leftward. shift leftward. pivot rightward. (Correct)

If an industry introduces a labor-saving technology in production, the demand curve for labor in that industry is likely to:

shift to the left

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

shift to the left. pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

shift to the left. pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis. (Correct )

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

shifts to the left. shifts to the right. pivots leftward without a change in the intercept on the horizontal axis. pivots rightward without a change in the intercept on the horizontal axis.

normal goods compared to the Apple Watch. complements to the Apple Watch. inferior goods compared to the Apple Watch. substitutes for the Apple Watch.

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

shifts to the left. shifts to the right. pivots leftward without a change in the intercept on the horizontal axis. (Correct) pivots rightward without a change in the intercept on the horizontal axis.

normal goods compared to the Apple Watch. complements to the Apple Watch. inferior goods compared to the Apple Watch. substitutes for the Apple Watch. (Correct)

income

normal vs. inferior goods

shortage

not enough to go around (price too low) quantity demanded > quantity supplied (excess demand) expect price to increase

not in equilibrium

shortage or surplus

shifts in supply

number of sellers, input prices, technology, expectations

efficient outcome

occurs when marginal benefits equal marginal costs

Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should

offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon.

The supply curve for watches

shows the relationship between the price of watches and the quantity of watches supplied.

One reason why adverse selection problems arise in health insurance markets is that

sick people are more likely to want health insurance than healthy people.

A warranty is an example of ________.

signaling

You decide to carry a letter of recommendation from your college professor while going for your first interview. This is an example of ________.

signaling

Sequential games are used to analyze

situations in which one firm acts and other firms respond.

When production generates a negative externality, the true cost of production is the

social cost of production.

equilibrium price

one market price

A good is non-rival in consumption if ________.

one person's use of the good does not preclude consumption by others

A best response is ________.

one player's optimal action choice taking the other player's action as given

Employers engaging in ________ try to enhance their profits.

statistical discrimination

A ________ is a complete plan describing how a player will act.

strategy

microeconomics

studies how individuals (businesses, households, government agencies) make decisions when faced with limited resources. The outcomes of these individual decisions lead to the outcomes we study in Macroeconomics, such as GDP growth and unemployment

welfare economics

studies how the allocation of resources affects economic well-being measures how well consumers and producers are doing in the market

substitutes for the Apple Watch.

Tomas increased his consumption of potato chips when the price of pistachios increased. For Tomas, potato chips and pistachios are

substitutes in consumption.

prices of other goods

substitutes vs complements

market demand curve

sum of individual demand curves

A ________ curve shows the marginal cost of producing one more unit of a good or service.

supply

The best alternative use of a resource is referred to as its

opportunity cost

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost marginal cost marginal benefit economic equity

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost (Correct) marginal cost marginal benefit economic equity

The highest-valued alternative that must be given up to engage in an activity is the definition of

opportunity cost.

The extra cost associated with undertaking an activity is called

opportunity cost. foregone cost. marginal cost. net loss.

The extra cost associated with undertaking an activity is called

opportunity cost. foregone cost. marginal cost. (Correct) net loss.

deadweight loss (DWL)

our measure of how much welfare is lost (how inefficient various policies are)

social surplus (total surplus)

overall measure of well-being in this market--how much value is generated from the resources that are used in a market equals value to buyers - costs to sellers or consumer surplus + producer surplus

Painters who paint water towers earn higher wages relative to painters who paint houses because

painting water towers is more risky than painting houses.

People do not feel "rich" because

people always want more

people are rational. people respond to economic incentives. optimal decisions are made at the margin. equity is more important than efficiency.

people are rational. people respond to economic incentives. (Correct) optimal decisions are made at the margin. equity is more important than efficiency.

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

people are rational. people respond to economic incentives. optimal decisions are made at the margin. equity is more important than efficiency

Economically rational means that consumers and firms

take actions that are appropriate to reach goals given available information.

Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as:

taste-based discrimination.

positive economics

tells us what is going on (facts)

normative economics

tells us what we should do (and requires a value judgement on our part)

price-gouging laws

temporary price ceilings to protect consumers (i.e. periods after natural disaster)

Classifying a good as rival means

that when one person consumes a unit of the good no one else can consume it.

The U.S. Congress has given two government entities the authority to police mergers. These two entities are

the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.

Marginal benefit is

the additional benefit from consuming one more unit.

Marginal cost is

the additional cost of producing one more unit.

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service.

The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and

the additional revenue received from selling the output produced as a result of hiring an additional worker.

The quantity demanded of a good is:

the amount of a good that buyers are willing to purchase at a given market price.

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.

In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was

the area of pasture was nonexcludable and the consumption of the grass was rival.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

the area under the demand curve

The most important determinant of the price elasticity of demand for a good is

the availability of substitutes for the good.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint

If the price of a good increases, ________.

the budget constraint shifts to the left the consumer surplus decreases the budget constraint shifts to the right the consumer surplus increases

If the price of a good increases, ________.

the budget constraint shifts to the left the consumer surplus decreases (Correct ) the budget constraint shifts to the right the consumer surplus increases

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint.

The substitution effect of an increase in the price of peaches is

the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that result from the effect of the change in the price on consumer purchasing power, holding all other factors constant

Because warranties are potentially ________, low-quality goods are ________ to have warranties.

very expensive; less likely

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued

complements

when price of x increases demand for y decreases (hot dogs and hot dog buns)

substitutes

when price of x increases, demand for y increases (Coke and Pepsi)

A monopolist's profit maximizing price and output correspond to the point on a graph

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

equilibrium

where we expect the market to settle, naturally moves towards

people are rational. (Correct) people respond to economic incentives. optimal decisions are made at the margin. equity is more important than efficiency

The "tragedy of the commons" refers to the phenomenon where

people overuse a common resource.

The basic idea behind moral hazard is that ________.

people tend to take more risks if they do not have to bear the costs of their behavior

A positive externality results when

people who are not directly involved in producing or paying for a good or service benefit from it.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be overweight than people without health insurance. people with health insurance are less likely to be overweight than people without health insurance. there is no correlation between having health insurance and being overweight. people with health insurance are equally likely to be overweight as people without health insurance.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be overweight than people without health insurance. (Correct) people with health insurance are less likely to be overweight than people without health insurance. there is no correlation between having health insurance and being overweight. people with health insurance are equally likely to be overweight as people without health insurance.

Holding all other personal characteristics - such as age, gender, and income- constant economists would expect that

people with insurance are more likely to be overweight than people without health insurance

The cross-price elasticity of demand for a good is the:

percentage change in the quantity demanded for a good due to a percentage change in the good's price. percentage change in the quantity demanded for a good due to a percentage change in tax rates. percentage change in the quantity demanded for a good due to a percentage change in the price of related goods. percentage change in the quantity demanded for a good due to a percentage change in the consumer's income.

The cross-price elasticity of demand for a good is the:

percentage change in the quantity demanded for a good due to a percentage change in the good's price. percentage change in the quantity demanded for a good due to a percentage change in tax rates. percentage change in the quantity demanded for a good due to a percentage change in the price of related goods. (Correct) percentage change in the quantity demanded for a good due to a percentage change in the consumer's income.

Firms do not have market power in which of the following market structures?

perfect competition only

A chemical factory releases its byproducts in a nearby river, which harms aquatic flora and fauna. This is an example of a ________.

negative externality

Pollution is an example of a

negative externality.

The Coase theorem relies on internalizing externalities through ________.

negotiations between the parties involved

non-binding price floor

set floor below equilibrium price, will have no (immediate) effect on market

price ceiling

sets maximum on price you can charge

price floor

sets minimum on price you can charge

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

no competitors apparently found the profit level attractive enough to enter the market.

Consumer Willingness to Pay Anya $24 Basil 20 Celeste 15 Dralon 12 Esther 7 Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one ticket is $25

no one will buy a ticket.

Difference between absolute advantage and comparative advantage

- absolute advantage is when a person, firm, or country produces more of a good or service than competitors by using the same amount of resources - comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another

Why is the concept of opportunity cost so important when making decisions?

- all factors of production are finite; must know how much you're giving up to see which decision is optimal - must consider trade offs caused by the choices made.

Market

- an arrangement that allows buyers and sellers to come together to exchange goods and services - adapts well to what the people want and the skills of the laborers - high standard of living - no public goods like libraries, roads, or schools.

Command

- an economic system in which a central authority makes the major economic decisions - can change from farming and manufacturing and back quickly - no unemployment - many shortages/surpluses in production because the government isn't well adapted to the needs of the people

Traditional

- an economic system in which the allocation of scarce resource and the other economic activities are based on ritual, habit, or custom - focus on a community as a whole - system is stable, everyone knows their role in the economy

What is the difference between a normal good and an inferior good? How does this relate to the good's income elasticity?

- an inferior good (elasticity negative) is a type of good that declines in demand when income rises; these could be items such as generic foods, off-brand electronics, and discount store clothing (Faded Glory clothes) - a normal good acts just the opposite of an inferior good; demand increases when income increases. - Income elasticity of demand measures the responsiveness of the quantity demanded for a good or service to a change in the income of the people demanding the good, ceteris paribus

What are some of the reasons why a correlation between two variables might not mean that one causes the other?

- correlation does not equal causation - correlation is a mathematical construct between relationship of two variables - correlation does not take into consideration confounding/omitted variables

Adam Smith

- discusses markets as a method for allocating resources - discusses the idea of the invisible hand theorem

Which of the following can be derived from other assumptions of economics Scarcity. Tradeoffs. Opportunity costs. B and C above. A and B above.

B and C above.

difference between a change in quantity demanded and a change in demand

- a change in quantity demanded represents a movement along the current demand curve, while a change in demand represents a shift in the entire demand curve. - - quantity demanded is responsive to changes in price, whereas demand shifts when people are now willing to purchase different amounts of products at the same price.

Economists assume that the goal of consumers is to

make themselves as well off as possible.

The extra cost associated with undertaking an activity is called

marginal cost

The extra cost associated with undertaking an activity is called

marginal cost.

people are rational.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be overweight than people without health insurance.

A correlation between two variables implies that:

there is a mutual relationship between both the variables.

A model refers to

a simplified description, or representation, of reality

Which of the following happens when a Pigouvian subsidy is provided?

The marginal private benefit curve shifts upward.

A decrease in the price of GPS systems will result in

a smaller quantity of GPS systems supplied.

A dominant strategy is

a strategy that is the best for a firm no matter what strategies other firms use.

Tradeoffs

a theme in microeconomics where individuals have limited resources, unlimited wants

Which of the following statements best describes the concept of consumer surplus? "Safeway was having a sale on Dreyer's ice cream so I bought 3 quarts." "I paid $130 for a printer last week. This week the same store is selling the same printer for $110." "I sold my Blu-ray copy of Ben-Hur for $18 at a garage sale even though I was willing to sell it for $10." "I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."

"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."

Explain the relationship between the slope of the production possibilities frontier and the opportunity cost of producing the good on the horizontal axis

"If tacos are on the X axis and enchiladas are on the Y axis as we go across the X axis eventually everyone will switch from enchiladas to tacos. The order they switch is determined by their opportunity cost for what is being produced on the X axis. In this example it is tacos, so whoever has the comparative advantage will switch to racos first and will go until he's producing all tacos. Then the next lowest OC then the next until everyone is producing tacos"

Which of the following statements refers to rent seeking? "Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws." "The federal government should spend more money on programs that help low income citizens and less money on national defense." "There is an opportunity cost whenever the federal government spends tax revenue. For example, an additional $1 billion spent on national defense means there will be less revenue for highway construction and maintenance or some other program." "The role of the federal government in the U.S. economy grew significantly after the Great Depression. Government spending and taxes are a much greater proportion of total income today than they were in 1929."

"Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws."

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

Dissolvable tobacco products contain less nicotine than cigarettes and can help people quit smoking. Suppose the figure to the right illustrates five consumers' willingness to pay for tobacco lozenges. If the price of a pack of tobacco lozenges is $4.00, what is the consumer surplus for these consumers? Consumer surplus is

$10

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________

$10 $2 $3 $2.50

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________

$10 $2 $3 (Correct) $2.50

Wendell can sell five motor homes per week at a price of $22,000. If he lowers the price of motor homes to $20,000 per week he will sell six motor homes. What is the marginal revenue of the sixth motor home?

$10,000

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

$15

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $14, a second lawn for $15, and a third lawn for $25. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $32 to have her lawn mowed, Mr. Wilson would be willing to pay $30, and Ms. Smith would be willing to pay $25. If Tim offers to mow lawns for $25 each, what will be his producer surplus? (Enter a numeric response using an integer.) Considering Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

$21 $12

Suppose your expenses for this term are as follows: tuition: $12,000, room and board: $6,500, books and other educational supplies: $1,500. Further, during the term, you can only work part-time and earn $3,500 instead of your full-time salary of $14,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

$24,000

The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. What is the value of consumer surplus at the equilibrium price of $15?

$240

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________.

Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?

$300

The Waco Kid's Cowboy Hats Marginal Cost (dollars) 1st hat $24 2nd hat 30 3rd hat 38 4th hat 46 Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of cowboy hats is $50, how many hats will be produced?

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$75

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$75

Invisible Hand

- a theory that provides the basis for a market economy and for a free society - relies on individuals pursuing self interests

What impacts the price elasticity of a demand curve?

- these factors include price, income level and availability of substitutes - one factor that can affect demand elasticity of a good or service is its price level - ex: the change in the price level for a luxury car can cause a substantial change in the quantity demanded

Table 1: Product & Production per hour Cooks Tacos Enchiladas Bree 12 6 Will 4 6 16 12 Assume the PPF in Figure 1 and using the production information in Table 1 is Will's individual PPF. Then the slope of the line is

-0.667

Table 1: Product & Production per hour Cooks Tacos Enchiladas Bree 12 6 Will 4 6 16 12 Assume the PPF in Figure 1 and using the production information in Table 1 is Bree's individual PPF. Then the slope of the line is

-2

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 The opportunity cost for Will to make an enchilada

0.25

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 The opportunity cost for Justin to make a pair of pants is

0.5

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 The opportunity cost for Jeff to pick a bushel of apples is

0.5

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

0.5; The product is inelastic.

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $14, a second lawn for $16, and a third lawn for $25. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $31 to have her lawn mowed, Mr. Wilson would be willing to pay $29, and Ms. Smith would be willing to pay $25. 1. If Tim offers to mow lawns for $25 each, what will be his producer surplus? 2. Considering Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

1. $20 2. $10

# 26Using the graph to the right, determine the effect on consumer surplus and producer surplus of a shift in the supply curve from S1 to S2. 1. Consumer surplus increases by areas 2. Producer surplus changes from areas 3. Economic surplus changes from areas

1. BCD 2.BE to areas EFG. 3. ABE to areas ABCDEFG.

Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve to shift to the left (from Supply 1 to Supply 2). 1. As a result, consumer surplus... 2. Producer surplus...

1. decreases by areas B, C, and D. 2. increases by area B and decreases by areas F and G.

Consider the market for eggs illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of 5 cents and a quantity of 50 (thousand). 1. If the price were 33 cents instead of 5 cents, then consumer surplus would 2. In turn, producer surplus would 3. Consequently, at a price of 33 cents, deadweight loss would equal

1. increase by area C and decrease by area E. 2.decrease by areas C and F 3. areas E and F

Consider the graph at right. #24 1. Comparing demand curves D1 and D2 , the consumer surplus is 2. Comparing demand curves D1 and D2 , the producer surplus is

1. larger with demand curve D1 because there is a larger area between the demand curve and the market equilibrium price. 2.the same for both D1 and D2 because there is no difference in the area between the market equilibrium price and the supply curve.

What does the slope of a budget constraint mean intuitively? What tradeoff does it represent?

1. prices and Income restrict the choices consumers can make 2. illustrates what is given up with each decision made - the slope is the opportunity cost

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

1.22

2 hats

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement. A. True B. False

Table 2: Product & Production per hour Cooks Tacos Enchiladas Dylan 12 9 Justin 4 12 16 21 Use Figure 2 and assume that one line represents Dylan's PPF, and the other Justin's, then the horizontal intercept of line B must be

Suppose an industry is made up of 25 firms, all with equal market share. The four-firm concentration ratio of this industry is

16%.

1st hat $24 2nd hat $30 3rd hat $38 4th hat $46 The table to the right lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of cowboy hats is $35, The Waco Kid will produce

2 hats

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

2.5 percent

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 The opportunity cost for Taylor to pick a bushel of cherries is

Incentives

a theme of microeconomics where the basic models in economics generally assume that people are rational

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market. Price ($/Bottle) Sandra's Demand (Bottles) David's Demand (Bottles) Mary's Demand (Bottles) $8 2 10 $6 14 15 18 $4 23 24 $2 24 27 28 Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:

7 bottles

A budget constraint is a straight line because: A. a consumer faces a fixed price of both goods that do not change with changes in consumption. B. the opportunity cost of buying each of the goods changes along the constraint. C. the tastes and preferences of the consumer change along the constraint. D. a consumer has a limited money income.

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because: A. Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible. B. Competitive markets ensure efficient amounts of each good and produce that good at least cost C. Competitive markets allocate goods to consumers in the best possible way, ensure least cost production, and use prices to generate the equilibrium. D. Competitive markets ensure production by the least cost sellers, and are generally better than government. E. A and B above.

An item has utility for a consumer if it A. generates enjoyment or satisfaction. B. is something everyone else wants. C. has a high price. D. is scarce.

As the ________ increases, ________. A. price of a good; its quantity demanded decreases B. quantity demanded of a good; its price increases C. quantity demanded of a good; its price decreases D. price of a good; its quantity demanded increases

Causation occurs when A. change in one variable is the reason for the change in another variable. B. change in one variable does not cause any change in another variable. C. two variables tend to move in the same direction. D. two variables tend to move in opposite directions.

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. A. rationally B. equitably C. selfishly D. emotionally

Economics is the study of A. SCARCITY B. PUBES C. LUKES SMALL COCK D. DTD

Economists assume that individuals A. are rational and respond to incentives. B. will never take actions to help others. C. prefer to live in a society that values fairness above all else. D. behave in unpredictable ways

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are A. complements in consumption. B. both luxury goods. C. substitutes in consumption. D. both inferior goods.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that A. people with health insurance are more likely to be overweight than people without health insurance. B. people with health insurance are less likely to be overweight than people without health insurance. C. there is no correlation between having health insurance and being overweight. D. people with health insurance are equally likely to be overweight as people without health insurance.

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is A. elastic. B. perfectly elastic. C. inelastic. D. unit elastic.

If demand is inelastic, the absolute value of the price elasticity of demand is A. less than one. B. greater than one. C. one. D. greater than the absolute value of the slope of the demand curve.

If demand is inelastic, the absolute value of the price elasticity of demand is A. less than one. B. one. C. greater than one. D. greater than the absolute value of the slope of the demand curve.

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is A. zero. B. more than one. C. less than one. D. equal to the absolute value of the slope of the demand curve

If the price of muffins, a normal good you enjoy, rises A. both the income and substitution effects lead you to buy fewer muffins. B. the income and substitution effects offset each other but the price effect leads you to buy fewer muffins. C. the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. D. the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

Price elasticity of demand measures A. how responsive quantity demanded is to a change in price. B. how responsive suppliers are to price changes. C. how responsive sales are to a change in buyers' incomes. D. how responsive sales are to changes in the price of a related good.

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following? A. income and substitution effects B. consumption effect C. price effect D. income effect only or substitution effect only but not both effects

The Law of Demand states that: A. the quantity demanded of a commodity varies inversely with the price of the commodity. B. the demand for a commodity always equals the supply of the commodity. C. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market. D. the demand for a commodity is mostly influenced by consumers' income.

The demand curve for most goods is normally: A. downward sloping. B. parallel to the horizontal axis. C. upward sloping. D. parallel to the vertical axis.

The highest valued alternative that must be given up to engage in an activity is the definition of A. opportunity cost B. marginal cost C. marginal benefit D. economic equity

The income effect of an increase in the price of peaches is A. the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. B. the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. C. the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. D. the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant.

The opportunity cost of going to an outdoor music festival is A. equal to the highest value of an alternative use of the time and money spent on the festival. B. the cost of the festival ticket only. C. the value of the time spent at the festival. D. zero because there are no overhead costs for an outdoor festival. E. the enjoyment you receive from going to the festival.

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals. A. True B. False

The revenue received from the sale of ________ of a product is a marginal benefit to the firm. A. an additional unit B. no units C. the total number of units D. only profitable units

The steps needed to evaluate the best way to organize an economy include: A. Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes. B. Determining whether an economy provides free choice, and an appropriate role for government. C. Determining what will be produced, how it will be produced and who gets it, and then limiting the role of government. D. Limiting central power and making the maximum use of markets. E. C and D above.

Two goods are said to be substitutes when a fall in the price of one good A. leads to a left shift in the demand for the other good. B. leads to a right shift in the demand for the other good. C. doesn't affect the demand for the other good. D. leads to a rise in the price of the other good.

What is the difference between an "increase in demand" and an "increase in quantity demanded"? A. 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. B. An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve. C. There is no difference between the two terms; they both refer to a movement downward along a given demand curve. D. There is no difference between the two terms; they both refer to a shift of the demand curve.

When buyers and sellers operate in a competitive market, they are A. Following their own self-interest, doing whatever serves them best. B. Following their own self-interest, but wanting the economy to operate efficiently. C. Trying to ensure that markets work. D. Trying to take advantage of the other person. E. A and C above.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to A. the income effect. B. the substitution effect. C. the elasticity effect. D. the deadweight loss effect.

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called A. the substitution effect. B. the income effect. C. the deadweight loss effect. D. the elasticity effect.

Which of the following best describes a good with perfectly elastic demand? A. Even the smallest increase in the price of the good will cause consumers to stop consuming it completely. B. The quantity demanded of the good is completely unaffected by a price change. C. The demand curve for the good initially slopes upward, reaches its maximum, and then slopes downward. D. For a given price change, the percentage change in quantity demanded will be less than the percentage change in its price.

Which of the following describes the substitution effect of a price change? A. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. B. The change in quantity demanded of a good that results from the change in the price of a substitute for the good. C. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. D. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Which of the following examples best describes the Law of Demand? A. When the price of tea increased, the quantity demanded of tea decreased. B. When Alex received a pay hike, his consumption of all goods increased. C. When the price of Nokia phones increased, the demand for Samsung phones increased. D. When the price of gasoline increased, the demand for cars fell.

Which of the following goods is likely to have the highest price elasticity of demand? A. Ketchup B. Salt C. Gasoline D. Life-saving drugs

Which of the following goods is likely to have the lowest price elasticity of demand? A. Life-saving drugs B. Chocolates C. Potato chips D. Decorative flowers

Which of the following is a normative economic statement? A. Farmers should not be allowed to grow and sell genetically-modified crops. B. The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. C. Rising corn prices have increased the price of corn-based ethanol. D. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased.

Which of the following is a normative economic statement? A. The price of wheat is too low. B. When the price of wheat falls, the cost of wheat-based products falls. C. When the price of wheat falls, the quantity of wheat purchased rises. D. The current low price of wheat is the result of increased worldwide supply.

Which of the following is a positive economic statement? A. If the price of iPhones falls, a larger quantity of iPhones will be purchased. B. The U.S. government should not have bailed out U.S. auto manufacturers. C. The standard of living in the United States should be higher. D. The government should revamp the health care system.

Which of the following is a positive economic statement? A. Raising the tax on gasoline raises the selling price of gasoline. B. The government should ban the production and sale of incandescent light bulbs. C. The government should revamp its immigration policies. D. U.S. citizens should only buy products which are produced in the United States

________ is the difference between the willingness to pay and the price paid for a good. A. Consumer surplus B. Producer surplus C. Revenue D. Seller's profit

An increase in the supply of capital, which is a complement to labor, will lead to

an increase in the demand for labor.

Which of the following is an example of adverse selection?

A customer buying a defective appliance from a used goods market

An increase in the demand for orthodontic services leads to

an increase in the demand for orthodontists.

Scarcity means that

A. We must find ways to deal with that scarcity. B. We must make choices and give up things we really want. C. Figure out the best set of social systems to address scarcity. D. All of the above. (Correct) E. A and B above.

Suppose the value of the price elasticity of supply is 4. What does this mean?

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Which of the following pairs of goods are likely to be considered substitutes?

A Ford car and public transportation

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then The market equilibrium quantity of tacos is efficient. The market equilibrium quantity of enchiladas is efficient. The sellers of tacos have higher costs than other potential sellers. All of the above. A and B above.

A and B above

The key problem(s) with externalities is that Private costs do not equal social costs. Private benefits do not equal social benefits. The government is often inefficient. All of the above. A and B above.

A and B above

The appropriate charge for trash disposal should be set by The opportunity cost of using the landfill, The cost of the trucks and labor needed to haul trash away, The impact of buried plastic bottles that only slowly degrade. All of the above. A and B above.

A and B above.

Which of the following are assumptions needed for simple arithmetic Numbers exist. Multiplication. Addition. All of the above. A and C above

A and C above

What is the difference between a change in quantity demanded and a change in demand?

A cahnge in quantity demanded represents a movement along the current demand curve, while a change in demand represents a shift in the entire demand curve. Quantity demanded is responsive to changes in price, whereas demand shifts when people are now willing to purchase different amounts of products at the same price

Which of the following factors will NOT cause a shift in the demand for a good?

A change in the market price of the good

What type of protection does U.S. law grant the creator of a book, film or piece of music?

A copyright, which grants the exclusive right to use the creation during the author's lifetime and to his or her heirs for 70 years after the author's death.

non-binding price ceiling

set ceiling above equilibrium price, will have no (immediate) effect on market

Other things remaining the same, which of the following is likely to cause a left shift in the supply curve for labor?

A decrease in population

Which of the following best describes the difference between a demand curve and a demand schedule? A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve. A demand curve shows different quantities of a good demanded at different prices, whereas a demand schedule shows different quantities of a good demanded at different incomes. A demand curve shows different quantities of a good demanded at different incomes, whereas a demand schedule shows different quantities of a good demanded at different prices. A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

Which of the following is likely to cause an increase in the wage rate and a fall in the employment level in a country?

A left shift in the supply curve for labor, without any change in the demand curve for labor

Which of the following occurs when an economic activity has a spillover benefit on third parties not engaged in the activity?

A positive externality

What is the difference between a public franchise and a public enterprise?

A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.

Which of the following is an example of a public good? A magazine subscription A house in a tourist destination A radio broadcast A training program for a company's employees

A radio broadcast

Which of the following is likely to cause the demand curve for cars to shift to the left?

A rise in the price of gasoline

Invisible Hand

A theory that provides the basis for a market economy and for a free society that relies on individuals pursuing self interests

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A decrease in the consumer's income A twofold increase in the price of pens and a threefold increase in the price of pencils An increase in the consumer's income A twofold increase in the prices of both pens and pencils

A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

A twofold increase in the prices of both pens and pencils An increase in the consumer's income A decrease in the consumer's income A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

Scarcity means that

Refer to the diagram to the right. What area represents producer surplus at a price of P2?

A+B+C

(T/F) Recycling is not an economic problem because it involves running out of basic resources that our children might need.

False

________ occurs when the direction of cause and effect is mixed up in a study.

Adverse causality Omitted variable bias Limited information bias Reverse causality

________ occurs when the direction of cause and effect is mixed up in a study.

Adverse causality Omitted variable bias Limited information bias Reverse causality (Correct)

________ occurs when one agent in a transaction knows about a hidden characteristic of a good.

Adverse selection

Why is the concept of opportunity cost so important when making decisions?

All factors of production are finite; must know how much you're giving up to see which decision is optimal

Advantages of trade include that It permits specialization. It permits people some people to produce more than they consume. It takes advantage of comparative advantage. All of the above.

All of the above

As early societies became more socially complex, economies started to rely On custom. On property rights. On markets. All of the above. None of the above.

All of the above

Hunter-gatherer societies allocated resources by a combination of Individual decisions. Sharing customs. Organized activity All of the above.

All of the above

Key limitations on the government correcting "market failures" include: Information Misaligned incentives between the government and citizens The incentive of the government to tax and spend to help politicians get elected or re-elected. All of the above.

All of the above

Restaurant owners have an incentive to Fully account for the value impact of restaurant smoking on nonsmokers. Fully account for the value of restaurant smoking to smokers. Take into account how smoking shifts the overall demand curve for restaurant meals. All of the above.

All of the above

Scarcity means that We must find ways to deal with that scarcity. We must make choices and give up things we really want. Figure out the best set of social systems to address scarcity. All of the above.

All of the above

The key advantage of market exchange compared to one-on-one (barter) trade is that Markets use money, which is generally better. Barter limits trades because each person must want what the other one has. Markets are more efficient. All of the above.

All of the above

The purposes of guilds included Managing Entry. Ensuring quality. Keeping prices high. All of the above.

All of the above

To evaluate recycling, you must consider The demand for recycled products, The incremental costs to society for recycling products, The value of the land used for landfills, All of the above.

All of the above

Which of the following can be derived from other assumptions about numbers. Subtraction. Multiplication. Division All of the above. B and C above.

All of the above

Which of the following can be established using economic analysis: People should work on teams to produce things because there is more job satisfaction. Products should be made more reliably. The government should not be the entity to choose the amounts of goods and services provided. None of the above can be established through economic analysis. All of the above can be established through economic analysis.

All of the above can be established through economic analysis.

Which of the following is true of a simultaneous move game?

All relevant benefits and costs of each action are taken into account.

________ is the measure of the sensitivity of one variable to a change in another.

Amplitude Buoyancy Multiplier Elasticity

________ is the measure of the sensitivity of one variable to a change in another.

Amplitude Buoyancy Multiplier Elasticity (Correct)

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 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. An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve. There is no difference between the two terms; they both refer to a movement downward along a given demand curve. There is no difference between the two terms; they both refer to a shift of the demand curve.

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. (Correct) An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve. There is no difference between the two terms; they both refer to a movement downward along a given demand curve. There is no difference between the two terms; they both refer to a shift of the 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.

Sewage treatment is an example of

An externality,

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil

An increase in the consumer's income A decrease in the consumer's income A twofold increase in the prices of both pens and pencils A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil

WHat is the difference between a normal good and an inferior good?

An inferior good (elasticity negative) is a type of good that declines in demand when income rises. These could be items such as generic foods, off-brand electronics, and discount store clothing. In contrast to inferior goods are normal goods. A normal good (elasticity 0-1) acts just the opposite of an inferior good; demand increase when income increases.

Which of the following statements best describes an inferior good?

An inferior good is a good whose demand decreases with an increase in consumers' income.

When people invest in a business, those investments

Are efficient if the government backs the investment. Are efficient if they prove to be successful. Are efficient if they are investing their own money. Are often inefficient because they don't work out. B and C above.

When people invest in a business, those investments

Are efficient if the government backs the investment. Are efficient if they prove to be successful. Are efficient if they are investing their own money.(Correct) Are often inefficient because they don't work out. B and C above.

When people invest in a business, those investments

Are efficient if they are investing their own money.

Refer to the graph to the right. Which of the following represents the deadweight loss when the price of tea is $2.20 per cup?

Area C + E

Which of the following statements is true? As output increases, average fixed cost becomes smaller and smaller. Average fixed cost does not change as output increases. When marginal cost is greater than average fixed cost, average fixed cost increases. The marginal cost curve intersects the average fixed cost curve at its minimum point.

As output increases, average fixed cost becomes smaller and smaller.

How does consumer surplus change as the equilibrium price of a good rises or falls?

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

The key to solving problems associated with smoking in restaurants is to

Assign property rights to restaurant owners.

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied.

A budget constraint A. reflects the desire by consumers to increase their income. B. refers to the limited amount of income available to consumers to spend on goods and services. C. shows the prices that a consumer chooses to pay for products he consumes. D. represents the bundles of consumption that make a consumer equally happy.

A budget constraint is a straight line because: A. the opportunity cost of buying each of the goods changes along the constraint. B. a consumer faces a fixed price of both goods that do not change with changes in consumption. C. a consumer has a limited money income. D. the tastes and preferences of the consumer change along the constraint.

A major question that faced societies 250 years ago was A. What would happen if you organized more of the economy with guilds. B. What would happen if you organized more of the economy with markets. C. What would happen if you organized more of the economy with government. D. Was there enough BlueBell? A, B, and C above.

A normal good is a good for which the demand increases as income decreases, holding everything else constant. A. True B. False

An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant A. True B. False

An omitted variable is a variable that: A. does not cause other variables in a study to change when it changes. B. has been left out, and if included, would explain why the variables considered in a study are correlated. C. is purposely left out as it does not aid an economic analysis. D. is removed from a study as it can lead to the problem of reverse causality.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases A. the opportunity cost of buying shirts increases. B. the opportunity cost of buying sweaters increases. C. the opportunity cost of buying sweaters decreases. D. There is no change in the opportunity cost of consuming either good.

Central control of economies A. Emerged with governments. B. Regulated resources like land and water. C. Emerged when early civilizations came into existence. D. Was absent when society consisted of just prehistoric clans. E. None of the above.

Economic models do all of the following except A. answer economic questions. B. portray reality in all its minute details. C. make economic ideas explicit and concrete for use by decision makers. D. simplify some aspect of economic life.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as A. the price constraint. B. the budget constraint. C. maximizing behavior. D. economizing behavior.

Economists assume that rational behavior is useful in explaining choices people make A. Because irrational people do not make economic choices. B. Even though people may not behave rationally all the time. C. Even though people rarely, if ever, behave in a rational manner. D. Because individuals act rationally all the time in all circumstances.

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. A. perfectly elastic. B. relatively inelastic. C. unit elastic. D. More information is needed to answer the question

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely A. demand function B. budget constraint C. indifference curve D. demand schedule

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely. A. demand function B. budget constraint C. indifference curve D. demand schedule

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to: A. pivot rightward along the vertical axis. B. pivot leftward along the vertical axis. C. pivot rightward along the horizontal axis. D. pivot leftward along the horizontal axis.

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price. A. True B. False

If the income elasticity for canned food is 0.8, then canned food is an inferior good. A. True B. False

If the price of a good increases, ________. A. the budget constraint shifts to the left B. the consumer surplus decreases C. the budget constraint shifts to the right D. the consumer surplus increases

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as A. a decrease in demand. B. a decrease in quantity demanded. C. a decrease in consumers' taste for chocolate. D. a change in consumer income.

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5. A. True B. False

In economics, the term ________ means "additional" or "extra." A. equity B. marginal C. optimal D. allocative

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is." A. True B. False

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that A. people are rational. B. people respond to economic incentives. C. optimal decisions are made at the margin. D. equity is more important than efficiency.

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A. perfectly inelastic. B. inelastic. C. unit elastic. D. elastic.

When voluntary exchange takes place, both parties gain from the exchange. A. False B. True

Which of the following is a normative economic statement? A. Rising global demand for coal has led to increases in the price of coal. B. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. C. With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. D. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation.

Which of the following is a positive economic statement? A. The U.S. government should increase regulations on the banking industry. B. If the price of beef falls, a larger quantity of it will be bought. C. The government should implement a national consumption tax. D. The standard of living in the United States is too low.

Which of the following is not an example of the economic question of what to produce? A. Should we urbanize farmland? B. What is the best type of cell phone? C. How much should we recycle? D. Should we make breakfast tacos or waffles? E. Should we make SUVs or all electric vehicles?

Kat has 4 shirts and 8 pants. Bob has 5 shirts and 15 pants. Who has comparative advantage for pants? (least opportunity cost)

Bob

Kat has 4 shirts and 8 pants. Bob has 5 shirts and 15 pants. Who has the absolute advantage for pants?

Bob

Kat has 4 shirts and 8 pants. Bob has 5 shirts and 15 pants. Who has the absolute advantage for shirts?

Bob

Basil will receive $2 of consumer surplus from buying one ticket.

Which of the following statements about rent seeking is false? Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market. A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for.

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

Which branch of economics considers that economic agents do not always act rationally?

Behavioral economics

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?

Both the supply and demand curves have shifted to the left. As a result, there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?

Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

A change in the slope of a budget constraint indicates: A. a change in the consumer's tastes and preferences. B. a change in the price of either good without a change in the opportunity cost. C. a change in the price of either good that causes a change in the opportunity cost. D. a change in the consumer's income.

A good is said to have a relatively elastic demand if the value of price elasticity is: A. between 0.5 and 1. B. between 0 and 0.5. C. greater than 1. D. equal to 0.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases: A. the opportunity cost of buying sweaters decreases. B. There is no change in the opportunity cost of consuming either good. C. the opportunity cost of buying sweaters increases. D. the opportunity cost of buying shirts increases.

By definition, economics is the study of A. how to make money in the stock market. B. how to make money in a market economy. C. the choices people make to attain their goals, given their scarce resources. D. supply and demand

Economists assume that rational people do all of the following except A. use all available information as they act to achieve their goals. B. respond to economic incentives. C. undertake activities that benefit others and hurt themselves. D. weigh the benefits and costs of all possible alternative actions.

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price. A. relativity B. slope C. elasticity D. efficiency

Elasticity is: A. the difference of the percentage change in two variables. B. the product of the percentage change in two variables. C. the ratio of the percentage change in two variables. D. the sum of the percentage change in two variables.

If a good has a price elasticity of demand of -3, it implies that: A. if the income of the consumer increases by 1%, the quantity demanded of that good will increase by 3%. B. if the price of the good increases by 3%, the quantity demanded of the good will increase by 1%. C. if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%. D. if the income of the consumer increases by 3%, the quantity demanded of that good will increase by 1%.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to: A. pivot rightward along the vertical axis. B. shift to the right. C. pivot rightward along the horizontal axis. D. shift to the left.

If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch will A. increase the quantity demanded for the Gear S2. B. increase the quantity demanded for the Apple Watch. C. increase the demand for the Gear S2. D. decrease the demand for the Apple Watch.

If the demand for cell phone service is inelastic, then A. the quantity demanded does not change in response to changes in price. B. the percentage change in quantity demanded is equal to the percentage change in price. C. the percentage change in quantity demanded is less than the percentage change in price (in absolute value). D. the percentage change in quantity demanded is greater than the percentage change in price (in absolute value)

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is A. horizontal. B. curvilinear. C. vertical. D. downward sloping.

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint: A. shifts to the left. B. shifts to the right. C. pivots leftward without a change in the intercept on the horizontal axis. D. pivots rightward without a change in the intercept on the horizontal axis.

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant? A. The quantity demanded increases. B. The quantity demanded decreases. C. The demand curve shifts to the left. D. The demand curve shifts to the right.

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________ A. $10 B. $2 C. $3 D. $2.50

Marginal utility is the A. satisfaction achieved when a consumer has had enough of a product. B. total satisfaction received from consuming a given number of units of a product. C. extra satisfaction received from consuming one more unit of a product. D. average satisfaction received from consuming a product.

The cross-price elasticity of demand for a good is the: A. percentage change in the quantity demanded for a good due to a percentage change in the good's price. B. percentage change in the quantity demanded for a good due to a percentage change in tax rates. C. percentage change in the quantity demanded for a good due to a percentage change in the price of related goods. D. percentage change in the quantity demanded for a good due to a percentage change in the consumer's income.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in: A. income. B. supply. C. its price. D. tastes and preferences.

The extra cost associated with undertaking an activity is called A. foregone cost. B. opportunity cost. C. marginal cost. D. net loss.

The extra cost associated with undertaking an activity is called A. opportunity cost. B. foregone cost. C. marginal cost. D. net loss.

The key advantage of market exchange compared to one-on-one (barter) trade is that A. Markets use money, which is generally better. B. Barter limits trades because each person must want what the other one has. C. Markets are more efficient. D. All of the above. E. A and B above

The principle of opportunity cost is that A. the economic cost of using a factor of production is the alternative use of that factor that is given up. B. the cost of production varies depending on the opportunity for technological application. C. the economic cost of using a factor of production is the alternative use of that factor that is given up. D. in a market economy, taking advantage of profitable opportunities involves some money cost. E. taking advantage of investment opportunities involves costs.

The three fundamental questions that must be answered by any economy include: A. How much to produce, why goods are produced, and who gets the goods. B. Why to produce particular goods, how to produce them, and who gets them. C. How much to produce, how to produce goods, and who gets the goods. D. How to produce goods, why to produce them, and who gets them. E. Why to produce goods, how to produce them, and who gets them.

The video describes the steps in simple arithmetic as proceeding from A. Numbers to cardinal numbers to addition to subtraction to division to multiplication. B. Numbers to addition to subtraction to division to multiplication. C. Numbers to cardinal numbers to addition to subtraction to multiplication to division. D. Cardinal numbers to numbers to addition to multiplication to subtraction to division. E. None of the above.

Trade: A. Only emerged in about 1,000 B.C. B. Only emerged once markets became established. C. Has been a feature of nearly all economies. D. Only came into existence when markets developed. E. None of the above.

When people invest in a business, those investments A. Are efficient if the government backs the investment. B. Are efficient if they prove to be successful. C. Are efficient if they are investing their own money. D. Are often inefficient because they don't work out. E. B and C above.

When sellers sell goods in a market they are doing so because A. They are trying to get to the efficient market solution. B. They want the economy to function well, so they can contribute to social welfare. C. They can make more money selling that good than doing something else. D. A and B above. E. A and C above.

Which of the following is a normative economic statement? A. The price of gasoline is too high. B. The current high price of gasoline is the result of strong worldwide demand. C. When the price of gasoline rises, transportation costs rise. D. When the price of gasoline rises, the quantity of gasoline purchased falls.

Which of the following is a positive economic statement? A. People should not buy SUVs. B. The government should mandate electric automobiles. C. Scarcity necessitates that people make trade-offs. D. Foreign workers should not be allowed to work for lower wages than the citizens of a country.

Which of the following pairs of goods are likely to be considered complements? A. Motorcycles and typewriters B. Nokia and Samsung cell phones C. Pens and writing pads D. Laptops and electric heaters

Willingness to pay: A. is equal to the price of the highest-priced goods in a consumption bundle. B. is equal to the price of the lowest-priced goods in a consumption bundle. C. is the highest price that a buyer is willing and able to pay for a unit of good. D. is the lowest price that a buyer is willing and able to pay for a unit of good

________ is the difference between the willingness to pay and the price paid for a good.

Consumer surplus Producer surplus Revenue Seller's profit

________ is the difference between the willingness to pay and the price paid for a good.

Consumer surplus (Correct) Producer surplus Revenue Seller's profit

When trying to assess your economic well-being you should

Compare your situation to that of most of the people alive today

When trying to assess your economic well-being you should:

Compare your situation to that of most of the people alive today.

When trying to assess your economic well-being you should

Compare your situation to that of most of the people alive today. Compare your situation to that of most of the people alive today. Compare yourself to Donald Trump. Compare yourself to your neighbors. Compare yourself to your parents. Not compare yourself to others because that is foolish.

When trying to assess your economic well-being you should

Compare your situation to that of most of the people alive today. (Correct) Compare your situation to that of most of the people alive today. Compare yourself to Donald Trump. Compare yourself to your neighbors. Compare yourself to your parents. Not compare yourself to others because that is foolish.

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because:

Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible.

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because:

Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible. Competitive markets ensure efficient amounts of each good and produce that good at least cost Competitive markets allocate goods to consumers in the best possible way, ensure least cost production, and use prices to generate the equilibrium. Competitive markets ensure production by the least cost sellers, and are generally better than government. A and B above.

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because:

Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible. (Correct) Competitive markets ensure efficient amounts of each good and produce that good at least cost Competitive markets allocate goods to consumers in the best possible way, ensure least cost production, and use prices to generate the equilibrium. Competitive markets ensure production by the least cost sellers, and are generally better than government. A and B above.

________ is the difference between the willingness to pay and the price paid for a good.

Consumer surplus

Which of the following statements is true? Consumer surplus measures the net benefit from participating in a market. When a market is in equilibrium consumer surplus equals producer surplus. Consumer surplus measures the total benefit from participating in a market. Producer surplus measures the total benefit received by producers from participating in a market.

Consumer surplus measures the net benefit from participating in a market.

In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome?

Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.

Which of the following gives rise to a positive externality?

Consumption of a drug to cure a communicable disease

What are some of the reasons why a correlation between two variables might not mean that one causes the other?

Correlation does not equal causation; Correlation is a mathematical construct between relationship of two variables; correlation does not take into consideration confounding/omitted variables

How does the different between goods that are substitutes and complements relate to their cross-price elasticity?

Cross elasticity of demand or cros-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good

A change in the slope of a budget constraint indicates: A. a change in the consumer's tastes and preferences. B. a change in the consumer's income. C. a change in the price of either good without a change in the opportunity cost. D. a change in the price of either good that causes a change in the opportunity cost.

A correlation between two variables implies that: A. there is a cause-effect relationship between the two variables. B. when one variable changes, the other variable always changes by exactly the same amount. C. it is impossible to measure one variable without measuring the other. D. there is a mutual relationship between both the variables.

A decrease in the price of either good will cause a consumer's budget constraint to: A. shift rightward. B. pivot leftward. C. shift leftward. D. pivot rightward.

Adam Smith's book, the Wealth of Nations, investigated A. The factors affecting economic wealth across countries. B. The role of wealth played in social well-being. C. The role of custom in the economy. D. The role of markets in determining economic efficiency. E. All of the above.

Advantages of trade include that A. It permits specialization. B. It permits people some people to produce more than they consume. C. It takes advantage of comparative advantage. D. All of the above. E. A and C above.

Economics teaches us that people A. Fundamentally do not care about others in society. B. Fundamentally want more goods and that is the best way to behave. C. Fundamentally want more goods and that is unfortunate, but real. D. Fundamentally want more goods. E. A and B above.

Economists assume that the goal of consumers is to A. consume as much as possible. B. do as little work as possible to survive. C. spend all their income. D. make themselves as well off as possible.

Hunter-gatherer societies allocated resources by a combination of A. Individual decisions. B. Sharing customs. C. Organized activity D. All of the above. E. A and B above.

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand: A. greater than 1. B. less than 1. C. equal to 0. D. equal to 1.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to: A. shift to the left. B. pivot rightward along the vertical axis. C. shift to the right. D. pivot rightward along the horizontal axis.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to A. pivot rightward along the vertical axis. B. pivot leftward along the horizontal axis. C. pivot rightward along the horizontal axis. D. pivot leftward along the vertical axis.

In which of the following ways did the video not indicate you were rich compared to King George A.Indoor plumbing B. Travel C. Music D. Power E. Medical treatment

Making "how much" decisions involves A. calculating the total benefits of the activity and determining if you are satisfied with that amount. B. calculating the total costs of the activity and determining if you can afford to incur that expenditure. C. calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. D. determining the additional benefits and the additional costs of that activity.

The demand by all the consumers of a given good or service is the ________ for the good or service. A. quantity demanded B. law of demand C. scheduled demand D. market demand

The law of demand implies, holding everything else constant, that as the price of bagels increases, A. the quantity of bagels demanded will increase. B. the demand for bagels will increase. C. the demand for bagels will decrease. D. the quantity of bagels demanded will decrease

The market for smartwatches has begun to grow, due in part to the success of the Apple Watch. Following the successful launch of the Apple Watch in 2015, companies such as Samsung, Sony, and LG have all developed products to compete with the Apple Watch. The smartwatches introduced to compete with the Apple Watch would be considered A. normal goods compared to the Apple Watch. B. complements to the Apple Watch. C. inferior goods compared to the Apple Watch. D. substitutes for the Apple Watch.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as A. maximizing behavior. B. economizing behavior. C. the price constraint. D. the budget constraint.

The slope of a budget constraint represents A. the price of the good measured along the horizontal axis. B. the price of the good measured along the vertical axis. C. the money income of the consumer. D. the opportunity cost of one good in terms of another

The substitution effect of an increase in the price of Raisin Bran refers to A. the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. B. the decrease in the demand for Raisin Bran when its price rises. C. the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. D. the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

To calculate the price elasticity of demand we divide A. the percentage change in price by the percentage change in quantity demanded. B. the average price by the average quantity demanded. C. rise by the run. D. the percentage change in quantity demanded by the percentage change in price.

Using basic assumptions you can determine A. Why markets are efficient. B. When markets are efficient. C. When government intervention helps or hurts economic performance. D. All of the above. E. A and B above.

We can derive the market demand curve for gold earrings A. by adding vertically the quantity demanded of each gold earring consumed at each price. B. by adding the prices each gold earring consumer is willing to pay for each quantity. C. only if the tastes of all gold earring consumers are similar. D. by adding horizontally the individual demand curves of each gold earring consumer

Which of the following can be derived from other assumptions about numbers A. Subtraction. B. Multiplication. C. Division D. All of the above. E. B and C above.

Which of the following can be derived from other assumptions of economics A. Scarcity. B. Tradeoffs. C. Opportunity costs. D. B and C above. E. A and B above.

Which of the following is not an economic question: A. Do we have enough medical care in the economy? B. Should we recycle more? C. Should we make hybrids or SUVs? D. Is it better for stores to close on Sundays? E. All of the above are economic questions.

Which of the following items is likely to have the highest income elasticity of demand? A. a hamburger B. water C. breakfast cereal D. a luxury cruise to several European countries

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true? A. It is perfectly elastic at very high prices and perfectly inelastic at very low prices. B. It is inelastic at high prices and elastic at low prices. C. It is unit elastic throughout the demand curve. D. It is elastic at high prices and inelastic at low prices.

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil A. An increase in the consumer's income B. A decrease in the consumer's income C. A twofold increase in the prices of both pens and pencils D. A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A. A twofold increase in the prices of both pens and pencils B. An increase in the consumer's income C. A decrease in the consumer's income D. A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following would result in a higher absolute value of the price elasticity of demand for a product? A. The good is a necessity. B. The time period under consideration is short. C. The expenditure on the good is small relative to one's budget. D. A wide variety of substitutes are available for the good

________ is the measure of the sensitivity of one variable to a change in another. A. Amplitude B. Buoyancy C. Multiplier D. Elasticity

________ occurs when the direction of cause and effect is mixed up in a study. A. Adverse causality B. Omitted variable bias C. Limited information bias D. Reverse causality

(T/F) Recycling is not an economic problem because there is only so much land that can be used for landfill, and that land is substantially damaged by the creation of garbage dumps.

False

Let D= demand, S = supply, P = equilibrium price, 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

(T/F) Market equilibrium occurs where supply equals demand.

False

________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.

Deadweight loss

The steps needed to evaluate the best way to organize an economy include:

Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes.

The steps needed to evaluate the best way to organize an economy include

Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes. Determining whether an economy provides free choice, and an appropriate role for government. Determining what will be produced, how it will be produced and who gets it, and then limiting the role of government. Limiting central power and making the maximum use of markets. C and D above.

The steps needed to evaluate the best way to organize an economy include

Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes. (Correct) Determining whether an economy provides free choice, and an appropriate role for government. Determining what will be produced, how it will be produced and who gets it, and then limiting the role of government. Limiting central power and making the maximum use of markets. C and D above.

The steps needed to evaluate the best way to organize an economy include

Determining what will be produced, how it will be produced, and who gets it, and then evaluating these outcomes

The central question In trying to determine whether to involve the government in an economic issue is

Determining whether or not the government can be relied on to make things better.

Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market?

Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences.

Which of the following is not an economic question:

Do we have enough medical care in the economy? Should we recycle more? Should we make hybrids or SUVs? Is it better for stores to close on Sundays? All of the above are economic questions.

Which of the following is not an economic question:

Do we have enough medical care in the economy? Should we recycle more? Should we make hybrids or SUVs? Is it better for stores to close on Sundays?(Correct) All of the above are economic questions.

A hunter-gatherer society A. Is a notable exception to the general proposition that all societies must answer the question of what to produce. B. Is a notable exception to the general proposition that all societies must answer the question of how to produce it. C. Is a notable exception to the general proposition that all societies must answer the question of who gets it. D. All of the above. E. None of the above.

Economics studies A. Scarcity. B. The social institutions used to address scarcity. C. How much to produce, how to produce it, and who gets it. D. A and C above. E. All of the above.

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then A. The market equilibrium quantity of tacos is efficient. B. The market equilibrium quantity of enchiladas is efficient. C. The sellers of tacos have higher costs than other potential sellers. D. All of the above. E. A and B above.

Which of the following are assumptions needed for simple arithmetic A. Numbers exist. B. Multiplication. C. Addition. D. All of the above. E. A and C above.

Which of the following can be established using economic analysis A. People should work on teams to produce things because there is more job satisfaction. B. Products should be made more reliably. C. The government should not be the entity to choose the amounts of goods and services provided. D. None of the above can be established through economic analysis. E. All of the above can be established through economic analysis.

What is the dominant strategy in the prisoner's dilemma?

Each prisoner confesses because this is the rational action to pursue.

Central control of economies

Emerged with governments. Regulated resources like land and water. Emerged when early civilizations came into existence. Was absent when society consisted of just prehistoric clans. None of the above.

Central control of economies

Emerged with governments. Regulated resources like land and water.Correct Emerged when early civilizations came into existence. Was absent when society consisted of just prehistoric clans. None of the above.

Which of the following statements is true?

Employers are willing to forego profits when engaging in taste-based discrimination.

Which of the following best describes a good with perfectly elastic demand?

Even the smallest increase in the price of the good will cause consumers to stop consuming it completely. The quantity demanded of the good is completely unaffected by a price change. The demand curve for the good initially slopes upward, reaches its maximum, and then slopes downward. For a given price change, the percentage change in quantity demanded will be less than the percentage change in its price.

Which of the following best describes a good with perfectly elastic demand?

Even the smallest increase in the price of the good will cause consumers to stop consuming it completely. (Correct) The quantity demanded of the good is completely unaffected by a price change. The demand curve for the good initially slopes upward, reaches its maximum, and then slopes downward. For a given price change, the percentage change in quantity demanded will be less than the percentage change in its price.

(T/F) A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

False

(T/F) Banning smoking in restaurants is clearly economically efficient because passive smoke is harmful.

False

(T/F) Economics shows that it is inefficient to recycle plastic bottles because they have little value.

False

(T/F) George Stigler's paper, "The Theory of Economic Regulation," argues that special interest pressure from producers for leads to regulations that are designed for the benefit of consumers.

False

(T/F) If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.

False

(T/F) If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

False

(T/F) If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

False

(T/F) If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

False

(T/F) It is well-known that the use of landfills effectively destroys the value of land for subsequent use.

False

Which of the following is a normative economic statement?

Farmers should not be allowed to grow and sell genetically-modified crops. The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. Rising corn prices have increased the price of corn-based ethanol. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased.

Which of the following is a normative economic statement?

Farmers should not be allowed to grow and sell genetically-modified crops. (Correct) The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. Rising corn prices have increased the price of corn-based ethanol. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased.

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture?

Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

Which two factors make regulating mergers complicated?

First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.

When buyers and sellers operate in a competitive market, they are

Following their own self-interest, doing whatever serves them best

When buyers and sellers operate in a competitive market, they are

Following their own self-interest, doing whatever serves them best. Following their own self-interest, but wanting the economy to operate efficiently. Trying to ensure that markets work. Trying to take advantage of the other person. A and C above.

When buyers and sellers operate in a competitive market, they are

Following their own self-interest, doing whatever serves them best. (Correct) Following their own self-interest, but wanting the economy to operate efficiently. Trying to ensure that markets work. Trying to take advantage of the other person. A and C above.

Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a great seat in the sun on a hot, humid day: "Granted, I could have moved under the overhang and enjoyed today's contest from a nice, cool, shady seat. But when you paid forty-five dollars for a ticket in the fourth row, it's tough to move back to the twenty-fourth [row]." Source: Rob Neyer, Feeding the Green Monster, New York: iPublish.com, 2001, p.50. What should Rob do?

He should weigh the marginal cost of moving into the shade (a less desirable view) versus the marginal benefit of being under the shade.

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.

In which of the ways did the video indicate that Americans were rich to other societies today?

Housing, entertainment, food, and medical care

What does the substitution effect measure?

How much the higher price encourages consumers to buy different goods, assuming the same level of income

The three fundamental questions that must be answered by any economy include:

How much to produce, why goods are produced, and who gets the goods. Why to produce particular goods, how to produce them, and who gets them. How much to produce, how to produce goods, and who gets the goods. How to produce goods, why to produce them, and who gets them. Why to produce goods, how to produce them, and who gets them.

The three fundamental questions that must be answered by any economy include:

How much to produce, why goods are produced, and who gets the goods. Why to produce particular goods, how to produce them, and who gets them. How much to produce, how to produce goods, and who gets the goods. (Correct ) How to produce goods, why to produce them, and who gets them. Why to produce goods, how to produce them, and who gets them.

Consider the following pairs of items, which ones are compliments a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer I. a and b only II. c and d only III. e only IV. a, b, and c only

Which of the following are assumptions needed for simple arithmetic

Numbers exist. Multiplication. Addition. All of the above. A and C above. (Correct)

Which of the following is a positive economic statement? If the price of beef falls, a larger quantity of it will be bought. The government should implement a national consumption tax. The U.S. government should increase regulations on the banking industry. The standard of living in the United States is too low.

If the price of beef falls, a larger quantity of it will be bought.

Which of the following is a positive economic statement? The standard of living in the United States should be higher. The U.S. government should not have bailed out U.S. auto manufacturers. The government should revamp the health care system. If the price of iPhones falls, a larger quantity of iPhones will be purchased.

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

Which of the following is a positive economic statement?

If the price of iPhones falls, a larger quantity of iPhones will be purchased. The U.S. government should not have bailed out U.S. auto manufacturers. The standard of living in the United States should be higher. The government should revamp the health care system.

Which of the following is a positive economic statement?

If the price of iPhones falls, a larger quantity of iPhones will be purchased. (Correct) The U.S. government should not have bailed out U.S. auto manufacturers. The standard of living in the United States should be higher. The government should revamp the health care system.

What is the difference between goods that are substitutes and complements?

In economics, a complementary good or complement is a good with negative cross elasticity of demand, in contrast to a substitutue good. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreasedwhen the price of another good is increased

How does a normal good and an inferior good relate to the good's income elasticity?

Income elasticity of demand measures the responsiveness of the quantity demanded for a good or service to change in the income of the people demanding the good

Hunter-gatherer societies allocated resources by a combination of

Individual decisions, sharing customs, and organized hunting/gathering activity

Hunter-gatherer societies allocated resources by a combination of

Individual decisions. Sharing customs. Organized activity All of the above. A and B above.

Hunter-gatherer societies allocated resources by a combination of

Individual decisions. Sharing customs. Organized activity All of the above. (Correct) A and B above.

What does it mean for an economist to say that people are rational

Individuals look for and pursue opportunities to increase their utility. People respond to incentivies; People will use all avaliable information before acting to achieve their goals.

Where are points located on a graph if it is inefficient?

Inside the PPF and doesn't use up all goods possible

A hunter-gatherer society

Is a notable exception to the general proposition that all societies must answer the question of what to produce. Is a notable exception to the general proposition that all societies must answer the question of how to produce it. Is a notable exception to the general proposition that all societies must answer the question of who gets it. All of the above. None of the above.

A hunter-gatherer society

Which of the following is not an economic question: Do we have enough medical care in the economy? Should we recycle more? Should we make hybrids or SUVs? Is it better for stores to close on Sundays? All of the above are economic questions.

Is it better for stores to close on Sundays?

Explain comparative advantage and explain how it is related to opportunity cost

It is being able to produce goods by using fewer resources, at a lower opportunity cost, that gives countries a comparative advantage. The gradient of a PPF refects the opportunity cost of production. Increasing the production of one good means that less of another can be produced.

Where are points located on a graph if it is not achievable?

It is outside the PPF and with current goods and technology cannot be reached

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is perfectly elastic at very high prices and perfectly inelastic at very low prices. It is inelastic at high prices and elastic at low prices. It is unit elastic throughout the demand curve. It is elastic at high prices and inelastic at low prices.

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

What does scarcity lead to?

It leads to opportunity cost

What does the income effect do?

It looks how the price change affects consumer income. If price rises, it effectively cuts disposable income, and there will be lower demand

Advantages of trade include that

It permits specialization. It permits people some people to produce more than they consume. It takes advantage of comparative advantage. All of the above. A and C above.

Advantages of trade include that

It permits specialization. It permits people some people to produce more than they consume. It takes advantage of comparative advantage. All of the above. (Correct) A and C above.

Advantages of trade

It permits specialization. it can improve economic performance, and it generally benefits both parties

What is moral hazard?

It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

What is adverse selection?

It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

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.

What does the substitution effect state?

It states that an increase in the price of a good will encourage consumers to buy alternative goods

Which of the following is true of a payoff matrix?

It takes into account all relevant costs and benefits associated with each action of the players.

Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?

It will have to give up production and consumption of some other good.

Sarah is a high school graduate and James is a college graduate. Which of the following statements is true?

James is likely to have more human capital than Sara.

Is Jill Johnson correct when she says the following: "I am currently producing 10,000 pizzas per month at a total cost of $80,000. If I produce 10,001 pizzas, my total cost will rise to $80,050. Therefore, my marginal cost of producing pizzas must be increasing."

Jill's average total cost of production is increasing, so her marginal cost of producing pizzas must be increasing.

Cooks Tacos Enchiladas Dylan 12 9 Justin 6 12 18 21 Using Figure 3, moving from point A to Point B requires that

Justin start producing enchiladas first because then society gives up fewer tacos to get enchiladas.

Kat has 4 shirts and 8 pants. Bob has 5 shirts and 15 pants. Who has the comparative advantage for shirts? (least opportunity cost)

Kat

Which of the following goods is likely to have the highest price elasticity of demand? Ketchup Salt Life-saving drugs Gasoline

Ketchup

Which of the following goods is likely to have the highest price elasticity of demand?

Ketchup Salt Gasoline Life-saving drugs

Which of the following goods is likely to have the highest price elasticity of demand?

Ketchup (Correct) Salt Gasoline Life-saving drugs

Which of the following goods is likely to have the lowest price elasticity of demand?

Life-saving drugs Chocolates Potato chips Decorative flowers

Which of the following goods is likely to have the lowest price elasticity of demand?

Life-saving drugs (Correct) Chocolates Potato chips Decorative flowers

Scarcity in an economy emerges from

Limited resources and infinite wants

Which of the following statements is false? Marginal cost will equal average total cost when average total cost is at its lowest point. When marginal cost is less than average total cost, average total cost will fall. Marginal cost will equal average total cost when marginal cost is at its lowest point. When marginal cost is greater than average total cost, average total cost will rise.

Marginal cost will equal average total cost when marginal cost is at its lowest point.

Adam Smith's proposition or theorem consists of

Market outputs are efficient, those outputs are produced efficiency, and those outputs are allocated among buyers in the most efficient way

Adam Smith's proposition or theorem consists of

Market outputs are efficient, those outputs are produced efficiently, and those outputs are allocated among buyers in the most efficient way.

The key advantage of market exchange compared to one-on-one (barter) trade is that

Markets allow for greater specialization, allow trading to occur to a larger extent, and are more efficient

The key advantage of market exchange compared to one-on-one (barter) trade is that

Markets use money, which is generally better. Barter limits trades because each person must want what the other one has. Markets are more efficient. All of the above. A and B above.

The key advantage of market exchange compared to one-on-one (barter) trade is that

Markets use money, which is generally better. Barter limits trades because each person must want what the other one has. Markets are more efficient. (Correct) All of the above. A and B above.

Which of the following are assumptions needed for simple arithmetic

Numbers exist. Multiplication. Addition. All of the above. A and C above.

Which of the following pairs of goods are likely to be considered complements?

Motorcycles and typewriters Nokia and Samsung cell phones Pens and writing pads Laptops and electric heaters

Which of the following pairs of goods are likely to be considered complements?

Motorcycles and typewriters Nokia and Samsung cell phones Pens and writing pads (Correct ) Laptops and electric heaters

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Nash equilibrium.

Which of the following is an example of a public good? Music downloads National defense Natural forests Designer clothes

National defense

Scenario: Tom and Harry are participating in a game in which the participants are divided into groups of two. Tom and Harry have been put in the same group. At each round of the game, Tom will be given an item. Tom can either give it to Harry or pass it on to the next team. If he decides to pass it on to the next team, neither of them will get the prize. If he gives it to Harry, Harry can either pass it on to the next team or sell it himself. If he passes it on to the next team, each of them will get $100. However, if he decides to sell it, he will get an amount higher than $100 and Tom will get nothing. Refer to the scenario above. Which of the following will happen in equilibrium if the game is played only once?

Neither of them will make any money.

binding price ceiling

set ceiling below equilibrium price, will cause a shortage in the market

If a monopolist's price is $50 per unit and its marginal cost is $25, then

Not enough information is given to say what the firm should do to maximize profit.

The video describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to division to multiplication. Numbers to addition to subtraction to division to multiplication. Numbers to cardinal numbers to addition to subtraction to multiplication to division. Cardinal numbers to numbers to addition to multiplication to subtraction to division. None of the above.

The video describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to division to multiplication. Numbers to addition to subtraction to division to multiplication. Numbers to cardinal numbers to addition to subtraction to multiplication to division. (Correct) Cardinal numbers to numbers to addition to multiplication to subtraction to division. None of the above.

What creates scarcity?

Often caused by poor distribution of resources, rapid increase ni demand, or rapid decreae in supply

Where are points located on a graph if it is efficient?

On the PPF and uses up all goods possible

Beginning in the 1950s economists began to investigate incentives within government. They found that:

One should be cautious in calling on the government to improve economic performance.

Trade

Only emerged in about 1,000 B.C. Only emerged once markets became established. Has been a feature of nearly all economies. Only came into existence when markets developed. None of the above.

Trade

Only emerged in about 1,000 B.C. Only emerged once markets became established. Has been a feature of nearly all economies. (Correct) Only came into existence when markets developed. None of the above.

Refer to Figure 6-1. A perfectly elastic demand curve is shown in

Panel B.

Which of the following pairs of goods has a negative cross-price elasticity? Nokia and Samsung cell phones Pens and paper notebooks Motorcycles and typewriters Compact Disks (CDs) and electronic music files

Pens and paper notebooks

Which of the following is a positive economic statement?

People should not buy SUVs. The government should mandate electric automobiles. Scarcity necessitates that people make trade-offs. Foreign workers should not be allowed to work for lower wages than the citizens of a country.

Which of the following is a positive economic statement?

People should not buy SUVs. The government should mandate electric automobiles. Scarcity necessitates that people make trade-offs.(Correct ) Foreign workers should not be allowed to work for lower wages than the citizens of a country.

Which of the following can be established using economic analysis

People should work on teams to produce things because there is more job satisfaction, products should be made more reliably, and the government should not be the entity to choose the amounts of all available goods and services in the economy

Which of the following can be established using economic analysis

People should work on teams to produce things because there is more job satisfaction. Products should be made more reliably. The government should not be the entity to choose the amounts of goods and services provided. None of the above can be established through economic analysis. All of the above can be established through economic analysis.

Which of the following can be established using economic analysis

The key to Viscusi's findings about the net impact of smoking on healthcare costs is that

People who smoke need more medical care, but they also (unfortunately) tend to die younger, and that creates an offsetting reduction in health care costs.

Which of the following is a normative economic statement? The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. Rising global demand for coal has led to increases in the price of coal. With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Table 3: Product & Production per hour Cooks Tacos Enchiladas Dylan 12 9 Justin 6 12 18 21 Using Figure 3 and the production table above, point B is preferred to point D because

Point B has more of both goods.

What is the difference between positive and normative analysis?

Positive economics is objective and fact based, while normative economics is subjective and value based

In which of the following ways did the video not indicate you were rich compared to King George? Indoor plumbing Travel Music Power Medical treatment

Power

In which of the following ways did the video not indicate you were rich compared to King George

Power Indoor plumbing Travel Music Power Medical treatment

In which of the following ways did the video not indicate you were rich compared to King George

Power (Correct) Indoor plumbing Travel Music Power Medical treatment

Which of the following is a positive economic statement? Raising the tax on gasoline raises the selling price of gasoline. U.S. citizens should only buy products which are produced in the United States. The government should ban the production and sale of incandescent light bulbs. The government should revamp its immigration policies.

Raising the tax on gasoline raises the selling price of gasoline.

Which of the following is a positive economic statement?

Raising the tax on gasoline raises the selling price of gasoline. The government should ban the production and sale of incandescent light bulbs. The government should revamp its immigration policies. U.S. citizens should only buy products which are produced in the United States

Which of the following is a positive economic statement?

Raising the tax on gasoline raises the selling price of gasoline. (Correct) The government should ban the production and sale of incandescent light bulbs. The government should revamp its immigration policies. U.S. citizens should only buy products which are produced in the United States

In which of the ways did the video not indicate that Americans were rich compared to other societies today: Housing Video games Rap music Medical care Country music

Rap music

The economically efficient amount of recycling will occur if

Recyclers pay the full cost of picking up recycled products,

According to the video, recycling is an economic problem because

Recycling requires and produces economic resources.

What is comparative advantage?

Refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another

Central control of economies

Regulated resources like land and water.

Table 3: Product & Production per hour Cooks Tacos Enchiladas Dylan 12 9 Justin 6 12 18 21 Using Figure 3, efficient production

Requires taking into account comparative advantage and moves along line ABC AND is reflected in the fact that line ABC involves more production of both goods than line ADC.

Which of the following is not an example of the economic question of what to produce?

Should we urbanize farmland? What is the best type of cell phone? How much should we recycle? Should we make breakfast tacos or waffles? Should we make SUVs or all electric vehicles?

Which of the following is a normative economic statement?

Rising global demand for coal has led to increases in the price of coal. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation.

Which of the following is a normative economic statement?

Rising global demand for coal has led to increases in the price of coal. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. (Correct ) With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation.

Let D= demand, S = supply, P = equilibrium price, 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

What is the formula for opportunity cost?

Sacrificing/gaining = opportunity cost

Economics is the study of

Scarcity

Economics is the study of

Scarcity and how societies deal with it

Which of the following is a positive economic statement? People should not buy SUVs. Foreign workers should not be allowed to work for lower wages than the citizens of a country. The government should mandate electric automobiles. Scarcity necessitates that people make trade-offs.

Scarcity necessitates that people make trade-offs.

Which of the following are assumptions of economics

Scarcity.

Economics studies

Scarcity. The social institutions used to address scarcity. How much to produce, how to produce it, and who gets it. A and C above. All of the above.

Economics studies

Scarcity. The social institutions used to address scarcity. How much to produce, how to produce it, and who gets it. A and C above. All of the above. (Correct)

Which of the following can be derived from other assumptions of economics

Scarcity. Tradeoffs. Opportunity costs. B and C above. A and B above.

Which of the following can be derived from other assumptions of economics

Scarcity. Tradeoffs. Opportunity costs. B and C above. (Correct) A and B above.

Describe the difference between a scientific approach to evaluating markets and a philosophical approach to evaluating markets

Scientific methods can be tested and proven with data and experiments

Which of the following is not an example of the economic question of what to produce?

Should we urbanize farmland? What is the best type of cell phone?(Correct ) How much should we recycle? Should we make breakfast tacos or waffles? Should we make SUVs or all electric vehicles?

Which of the following is a market-based solution to the problem of adverse selection?

Signaling

Why is it important to use the elasticity of a demand curve rather than just its slope?

Slope is sensitive to units of measurement. Elasticity is not

Why is it important to use the elasticity of a demand curve rather than just its slope?

Slope is sensitive to units of measurement. Elasticity is not because it is calculated by percentage changes.

A key advantage of assigning property rights to owners of restaurants is that

Smokers and nonsmokers are likely to be able to eat meals the way they like.

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.

Which of the following can be derived from other assumptions about numbers

Subtraction. Multiplication. Division All of the above. B and C above.

Which of the following can be derived from other assumptions about numbers

Subtraction. Multiplication. Division All of the above. (Correct) B and C above.

The U.S. government has imposed quotas on the importation of sugar that makes sugar prices higher because

Sugar farmers lobbied for regulation that would increase their profits by limiting competition.

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?

Supply is perfectly elastic.

The formula for total fixed cost is

TFC = TC - TVC.

The difference between the salaries paid to movie stars and to actors who play supporting roles is much greater today than it was in the 1930s and 1940s. What factor explains this increase in relative salaries over time?

Technological advances in the entertainment industry increase the revenue that successful movies can earn. This has increased the movie studios' willingness to pay high salaries to movie stars.

Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?

Technological advances such as cable television has increased the demand for sports entertainment.

Which of the following statements is true? Models help economists to explain the past, but do not help in predicting the future. The scientific method used by economists is based on idealism and not empiricism. Testing with data enables economists to distinguish between good models and bad models. Models that economists use are perfect replicas of reality.

Testing with data enables economists to distinguish between good models and bad models.

Which of the following exemplifies the tragedy of the commons? Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide. Canadian citizens receive free universal health care administered by provincial governments. The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community.

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Which of the following is a positive economic statement?

The U.S. government should increase regulations on the banking industry. If the price of beef falls, a larger quantity of it will be bought. The government should implement a national consumption tax. The standard of living in the United States is too low.

Which of the following is a positive economic statement?

The U.S. government should increase regulations on the banking industry. If the price of beef falls, a larger quantity of it will be bought.(Correct ) The government should implement a national consumption tax. The standard of living in the United States is too low.

Suppose the government grants child care subsidies to mothers entering the labor force. What is likely to happen to the equilibrium wage and quantity of labor?

The equilibrium wage falls and the equilibrium quantity of labor rises.

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. The change in quantity demanded of a good that results from the change in the price of a substitute for the good. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. (Correct) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Which of the following is likely to be used as a signal in the job market?

The degree obtained by the applicant

The Internet has created a new category in the book selling market, namely, the "barely used" book. How does the availability of barely used books affect the market for new books?

The demand curve for new books shifts to the left.

W. Kip Viscusi studied tobacco smoking and concluded that

The external costs and benefits of smoking were about equal, so there wasn't a significant negative externality to smoking.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

The demand for Lincoln letters increases and the supply of Booth letters increases.

In the legal sector, some practice areas have declined in recent years. For example, personal-injury and medical-malpractice cases have been undercut by state laws limiting class-action suits, out-of-state plaintiffs, and payouts on damages, and securities class-action litigation has declined in part because of a buoyant stock market. How does this affect the market for lawyers?

The demand for lawyers shifts to the left.

What is likely to happen in a used-car market if the buyers feel that the best they can do is to buy a lemon?

The entire market shuts down.

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and the equilibrium quantity of labor rise.

Consider the market for opticians. What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?

The equilibrium wage and the equilibrium quantity of opticians fall.

Adam Smith's book, the Wealth of Nations, investigated

The factors affecting economic wealth across countries. The role of wealth played in social well-being. The role of custom in the economy. The role of markets in determining economic efficiency. All of the above.

Adam Smith's book, the Wealth of Nations, investigated

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

The good is a necessity. The time period under consideration is short. The expenditure on the good is small relative to one's budget. A wide variety of substitutes are available for the good

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

The good is a necessity. The time period under consideration is short. The expenditure on the good is small relative to one's budget. A wide variety of substitutes are available for the good (Correct )

If a good increases in price then (substitution effect)

The good is relatively more expensive than alternative goods, and therefore people will switch to other goods which are now relatively cheaper

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

The government imposes quantitative limits on the amount of pollution firms are allowed to generate.

Which of the following statements is true?

The income effect and the substitution effect of a wage rate change work in opposite directions.

If a good increases in price then (income effect)

The increase in price reduces disposable income and this lower income may reduce demand

Other things remaining the same, which of the following is likely to cause a decrease in both the wage rate and the number of workers hired in a glass factory?

The introduction of labor-saving technology in the factory

What was the primary point made by Adam Smith when he discussed markets as a method for allocating resources?

The invisible hand and the invisible hand theorem

What is the difference between labor's marginal product and marginal revenue product?

The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.

Which of the following occurs if the production of a good gives rise to positive externalities?

The marginal social benefit curve lies to the right of the demand curve.

How does the construction of a market demand curve for a private good differ from that for a public good?

The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.

If you have a competitive equilibrium for aa two market economy consisting of tacos and enchiladas then

The market equilibrium quantity of tacos is efficient and the market equilibrium quantity of enchiladas is efficient

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then

The market equilibrium quantity of tacos is efficient. The market equilibrium quantity of enchiladas is efficient. The sellers of tacos have higher costs than other potential sellers. All of the above. A and B above.

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then

In which of the following markets are buyers likely to have private information? The market for banking services The market for fresh fruits and vegetables The market for health insurance The market for used cars

The market for health insurance

What is the slope?

The opportunity cost

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

The parties involved negotiate with each other and reach an agreement.

In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States?

The supply curve shifted to the left.

If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture?

The supply curve would shift to the left.

Which of the following is a normative economic statement? The current high price of gasoline is the result of strong worldwide demand. The price of gasoline is too high. When the price of gasoline rises, the quantity of gasoline purchased falls. When the price of gasoline rises, transportation costs rise.

The price of gasoline is too high.

Which of the following is a normative economic statement?

The price of gasoline is too high. The current high price of gasoline is the result of strong worldwide demand. When the price of gasoline rises, transportation costs rise. When the price of gasoline rises, the quantity of gasoline purchased falls.

Which of the following is a normative economic statement?

The price of gasoline is too high. (Correct) The current high price of gasoline is the result of strong worldwide demand. When the price of gasoline rises, transportation costs rise. When the price of gasoline rises, the quantity of gasoline purchased falls.

Which of the following is a normative economic statement?

The price of wheat is too low. When the price of wheat falls, the cost of wheat-based products falls. When the price of wheat falls, the quantity of wheat purchased rises. The current low price of wheat is the result of increased worldwide supply.

Which of the following is a normative economic statement?

The price of wheat is too low. (Correct) When the price of wheat falls, the cost of wheat-based products falls. When the price of wheat falls, the quantity of wheat purchased rises. The current low price of wheat is the result of increased worldwide supply.

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

The prisoner's dilemma does not apply to most business situations that are repeated over and over.

What is scarcity?

The problem that occurs in an economy when limited resources collide with unlimited wants

What is absolute advantage?

The producer that requires a smaller quantity inputs to produce a good is said to have an advantage in producing that good.

Explain how following a supply curve will keep the economy on the PPF and why that coincides with efficiency regarding "how" to produce something

The producers with the lowest opportunity cost of produing a good will be the first ones to start. As the price increases, more and more people will start to supply the good. This follows the law of supply. This principle is demonstrated when forming the PPF, because the lines are created by someone new beginning to produce the good on the x-axis. They only do that when thenew good becomes just as profitable to produce. The producers will join the market in order of lowest to highest opportunity cost

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?

The quantity demanded increases. The quantity demanded decreases. The demand curve shifts to the left. The demand curve shifts to the right.

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?

The quantity demanded increases. The quantity demanded decreases. The demand curve shifts to the left.(Correct ) The demand curve shifts to the right.

Which of the following is evidence of a shortage of walnuts?

The quantity demanded of walnuts is greater than the quantity supplied.

Adam's Smith's book, the Wealth of Nations, investigated

The role of markets in determining economic efficiency

Adam Smith's book, the Wealth of Nations, investigated

The role of markets in determining economic efficiency.

A student makes the following argument: "When a market is in equilibrium, there is no consumer surplus . We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Briefly explain whether you agree with the student's argument.

The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed.

Define and explain a supply curve

The supply curve is a graphical representation of the relationship between the rpice of a good or service and the quantity supplied for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity supplied on the horiziontal axis has a positive slope.

What is the relationship between price elasticity and total revenue?

The total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded

Which of the following leads to the tragedy of the commons?

The use of common pool resources above the socially optimal level

The opportunity cost of using land for a landfill is determined by:

The value of the land before the landfill was developed, minus the cost of the land after the landfill is full.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?

There is a decrease in the supply of pool maintenance services.

Harvey Rabbitt pays for monthly cable TV service. Last week the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area. How is the market for cable TV services affected by this?

There is an increase in the supply of cable TV service.

The net effect of smoking in a restaurant is to

There is no general answer.

Other things remaining the same, which of the following is likely to happen if there is a decrease in the price of flour products?

There will be a decrease in both the wage rate and the employment levels in the flour industry.

Consumer Willingness to Pay Tom $40 Dick 30 Harriet 25 Refer to Table 4-1. The table above lists the highest prices three consumers, Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the price of one of the shirts is $28 dollars

Tom will receive $12 of consumer surplus from buying one shirt.

What impacts the price elasticity of a demand curve?

These factors include price, income level, and avaliablity of substitutes. One factoe that can affect demand elasticty of a good or service is its price level. For example, the change in the price level for a luxury car can cause a substantial cahnge in the quantity demanded

How is the opportunity cost related to the PPF?

They are related because as one moves further from the orgin along the x-axis, opportunity cost increases. The slope of the PPF represents the opportunity cost of all people in the market. Therefore, what society must give up in order to get another unit of x. (give up an enchilada for a taco)

When sellers sell goods in a market they are doing so because

They are trying to get to the efficient market solution. They want the economy to function well, so they can contribute to social welfare. They can make more money selling that good than doing something else. A and B above. A and C above.

When sellers sell goods in a market they are doing so because

When seller sell goods in a market they are doing so because

They can make more money selling that good than doing something else

When sellers sell goods in a market they are doing so because

They can make more money selling that good than doing something else.

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

True

tom $40 dick $30 harriet $25 The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a short − sleeved polo shirt. If the price of one of the shirts is $28 dollars

Tom will receive $12 of consumer surplus from buying one shirt.

What are the types of systems tht have been used to govern resource allocation?

Tradition, Command, and Market

(T/F) "An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True

(T/F) A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.

True

(T/F) A shortage occurs when the market price is lower than the equilibrium price.

True

(T/F) A surplus occurs when the actual selling price is above the market equilibrium price.

True

(T/F) An increase in the quantity of a product supplied is caused by an increase in the price of the product.

True

(T/F) If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

True

(T/F) In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

True

(T/F) Marginal cost is the additional cost to a firm of producing one more unit of a good or service.

True

(T/F) Marginal cost is the additional cost to a firm of producing one more unit of a good or service. Selected Answer

True

(T/F) One problem with using taxes to solve economic externalities is that politicians may spend the money on things they like, rather than things their constituents want.

True

(T/F) Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.

True

(T/F) Recycling is an economic issue because the goods that are recycled, the land for landfills, and the trucks and labor needed for both recycling and trash disposal are all examples of scarce resources.

True

(T/F) The additional cost to a producer of hiring an additional unit of labor is called the marginal cost.

True

(T/F) The possibility of "government failures" should be evaluated before getting the government involved in addressing "market failures."

True

(T/F) The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

True

(T/F) The social problem of smoking in restaurants because smokers and nonsmokers want to use the air in different ways.

True

(T/F) The video indicated that there is a significant difference between recycling fluorescent lights and plastic bottles.

True

(T/F) When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society.

True

(T/F) When voluntary exchange takes place, both parties gain from the exchange.

True

(T/F)Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.

True

The total value to society of having garbage removed is greater than the value of baseball games. Why, then, are baseball players paid more than garbage collectors?

Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors.

What does the video say about scarcity?

We must find ways to deal with scarcity and figure out the best set of social arrangements to address scarcity

Which of the following is not an example of the economic question of what to produce? Should we urbanize farmland? What is the best type of cell phone? How much should we recycle? Should we make breakfast tacos or waffles? Should we make SUVs or all electric vehicles?

What is the best type of cell phone?

The three fundamental questions that must be answered by any economy include:

What to produce, how to produce goods, and who gets the goods

What are the three central questions that scarcity creates for an economy?

What will be produced, How will it be produced, and for whom will it be produced for

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with guilds. What would happen if you organized more of the economy with markets. What would happen if you organized more of the economy with government. Was there enough BlueBell? A, B, and C above.

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with guilds. What would happen if you organized more of the economy with markets. (Correct) What would happen if you organized more of the economy with government. Was there enough BlueBell? A, B, and C above.

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with markets

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with markets.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain

Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.

Which of the following examples best describes the Law of Demand

When the price of bread doubles, John's consumption of bread halves

Which of the following examples best describes the Law of Demand? When John's income doubles, his telephone bill also doubles. When a new anti-tobacco commercial is released, the consumption of tobacco products decreases sharply. When the price of bread doubles, John's consumption of bread halves. When the price of watches increases, a local manufacturer starts offering more watches for sale.

When the price of bread doubles, John's consumption of bread halves.

Describes the Law of Demand

When the price of tea increased, the quantity demanded of tea decreased

Which of the following examples best describes the Law of Demand?

When the price of tea increased, the quantity demanded of tea decreased. When Alex received a pay hike, his consumption of all goods increased. When the price of Nokia phones increased, the demand for Samsung phones increased. When the price of gasoline increased, the demand for cars fell.

Which of the following examples best describes the Law of Demand?

When the price of tea increased, the quantity demanded of tea decreased. (Correct) When Alex received a pay hike, his consumption of all goods increased. When the price of Nokia phones increased, the demand for Samsung phones increased. When the price of gasoline increased, the demand for cars fell.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.

Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.

What does it ean to make decisions on the margin?

When you decide how much more or less to do, you are thinking on the margin. Deciding by thinking on the margin involves comparing the marginal opportunity costs and marginal benefits. Deciding to do less of one thing and more of something else, not all of one thing and none of the other.

Using basic assumptions you can determine

Why markets are efficient. When markets are efficient. When government intervention helps or hurts economic performance. All of the above. A and B above.

Using basic assumptions you can determine

Why markets are efficient. When markets are efficient. When government intervention helps or hurts economic performance. All of the above. (Correct ) A and B above.

Women typically earn less than men, even in the same occupation. Which of the following is an explanation for this discrepancy?

Women have, on average, less workforce experience than men of the same age.

Which of the following is a likely reason for wage inequality between men and women?

Women tend to spend more time out of the labor force as compared to men.

Economic Questions:

Would people be better off if they wanted fewer goods?

Scenario: Your car broke down while you were driving to the office one morning. You took it to the nearest service center and were told by the mechanic that you need to pay $500 for the repair. You are confused whether or not to trust him. If you do not trust him, you have to take it to another service center, which is far away and inconvenient. If you trust him, he can either cooperate or defect (do an honest job or not). If he does an honest job, both of you will gain from the trade. If he does not do an honest job, he will gain $500 while you will lose your money. Clearly, he will gain more by defecting rather than cooperating with you. Refer to the scenario above. Which of the following is likely to happen if the service center has a reputation of trustworthiness?

You will trust the mechanic and he will cooperate.

Margin

a theme of microeconomics where we will typically try to analyze decisions incrementally (looking at marginal costs and marginal benefits of decisions

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as

a decrease in demand. a decrease in quantity demanded. a decrease in consumers' taste for chocolate. a change in consumer income.

Consider the following methods of pollution reduction: a. the government sets a target for maximum emissions b. the government mandates the installation of specific pollution abatement equipment c. the government imposes a per unit tax on the good that creates pollution d. the government gives firms a tax rebate for every unit of pollution abated Which of the above is an example of a command-and-control approach to reducing pollution?

a and b only

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer

a and b only c and d only e only a, b, and c only

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer

a and b only (Correct) c and d only e only a, b, and c only

Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

a and d

A change in the slope of a budget constraint indicates:

a change in the consumer's tastes and preferences. a change in the consumer's income. a change in the price of either good without a change in the opportunity cost. a change in the price of either good that causes a change in the opportunity cost.

A change in the slope of a budget constraint indicates:

a change in the consumer's tastes and preferences. a change in the price of either good without a change in the opportunity cost. a change in the price of either good that causes a change in the opportunity cost. a change in the consumer's income.

A change in the slope of a budget constraint indicates:

A change in the slope of a budget constraint indicates

a change in the price of a good that causes a change in the opportunity cost

A change in the slope of a budget constraint indicates:

a change in the price of either good that causes a change in the opportunity cost.

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

a command-and-control approach to pollution reduction.

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 Bree has

a comparative advantage and an absolute advantage in making tacos.

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 Jeff has

a comparative advantage and an absolute advantage in picking cherries.

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17

a comparative advantage but not an abolute advantage in making pants.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption. the opportunity cost of buying each of the goods changes along the constraint. the tastes and preferences of the consumer change along the constraint. a consumer has a limited money income.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption.(Correct) the opportunity cost of buying each of the goods changes along the constraint. the tastes and preferences of the consumer change along the constraint. a consumer has a limited money income.

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?

a decision tree

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as

a decrease in demand. a decrease in quantity demanded. (Correct) a decrease in consumers' taste for chocolate. a change in consumer income.

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as

a decrease in quantity demanded.

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced

a decrease in supply.

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in

a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

a decrease in the price of orange juice processing

What is a prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

Which of the following items is likely to have the highest income elasticity of demand?

a hamburger water breakfast cereal a luxury cruise to several European countries

Which of the following items is likely to have the highest income elasticity of demand?

a hamburger water breakfast cereal a luxury cruise to several European countries (Correct)

A firm can use anchoring to influence consumer choices so as to increase sales by marking

a high "regular price" on a product, which makes the discounted "sale price" appear to be a bargain.

Consider a used car market in which half the cars are good and half are bad (lemons). If buyers are rational, the prices being offered for used cars will result in

a larger proportion of lemons being sold and consequently, producer surplus is increased.

An increase in the price of pineapples will result in

a larger quantity of pineapples supplied.

Information asymmetry in a market can lead to ________.

a market failure

nformation asymmetry in a market can lead to ________.

a market failure

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.

If the social cost of producing a good or service exceeds the private cost

a negative externality exists.

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

The market demand for a public good can be determined by

adding up how much each consumer is willing to pay for each unit of the public good.

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit no units the total number of units only profitable units

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit (Correct) no units the total number of units only profitable units

Collusion is

an agreement among firms to charge the same price or otherwise not to compete.

Market

an arrangement that allows buyers and sellers to come together to exchange goods and services; Decisions of households and firms interacting in markets allocate economic resources and services

Command

an economic system in which a central authority makes the major economic decisions

Traditional

an economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom. Focus on a community as a whole

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem

an efficient solution can be reached regardless of the initial assignment of property rights

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

demand function budget constraint (Correct) indifference curve demand schedule

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. A player should use ________ to play this game.

backward induction

Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction. Refer to the scenario above. You should use ________ to arrive at a decision.

backward induction

The first mover in an extensive-form game should use ________ to win the game.

backward induction

Economists assume that rational behavior is useful in explaining choices people make

because irrational people do not make economic choices. even though people may not behave rationally all the time. even though people rarely, if ever, behave in a rational manner. because individuals act rationally all the time in all circumstances.

Economists assume that rational behavior is useful in explaining choices people make

because irrational people do not make economic choices. even though people may not behave rationally all the time. (Correct) even though people rarely, if ever, behave in a rational manner. because individuals act rationally all the time in all circumstances.

Which of the following explains why talented major league baseball players command much higher salaries than neurosurgeons?

because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon.

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called

behavioral economics.

A good is said to have a relatively elastic demand if the value of price elasticity is:

between 0.5 and 1. between 0 and 0.5. greater than 1. equal to 0.

A good is said to have a relatively elastic demand if the value of price elasticity is:

between 0.5 and 1. between 0 and 0.5. greater than 1. (Correct ) equal to 0.

If the price of muffins, a normal good you enjoy, rises

both the income and substitution effects lead you to buy fewer muffins. the income and substitution effects offset each other but the price effect leads you to buy fewer muffins. the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

If the price of muffins, a normal good you enjoy, rises

both the income and substitution effects lead you to buy fewer muffins. (Correct) the income and substitution effects offset each other but the price effect leads you to buy fewer muffins. the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

If a consumer purchase any combination of goods and services on his ______, he will exhaust his income completely

budget constraint

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

budget constraint

In a market with asymmetric information, ________.

buyers and sellers have different information about the good being traded

Adverse selection arises in the health insurance market because ________.

buyers have private information

For-profit producers will produce only private goods because

buyers will be willing to pay for the goods since the benefits are excludable.

We can derive the market demand curve for gold earrings

by adding horizontally the individual demand curves of each gold earring consumer.

We can derive the market demand curve for gold earrings

by adding vertically the quantity demanded of each gold earring consumed at each price. by adding the prices each gold earring consumer is willing to pay for each quantity. only if the tastes of all gold earring consumers are similar. by adding horizontally the individual demand curves of each gold earring consumer

We can derive the market demand curve for gold earrings

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. How can you convince your manager that you are worth more money than you are currently being paid?

by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop

Causation occurs when

change in one variable is the reason for the change in another variable. change in one variable does not cause any change in another variable. two variables tend to move in the same direction. two variables tend to move in opposite directions.

Making "how much" decisions involves

calculating the total benefits of the activity and determining if you are satisfied with that amount. calculating the total costs of the activity and determining if you can afford to incur that expenditure. calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. determining the additional benefits and the additional costs of that activity.

Making "how much" decisions involves

Causation occurs when

change in one variable is the reason for the change in another variable. (Correct) change in one variable does not cause any change in another variable. two variables tend to move in the same direction. two variables tend to move in opposite directions.

Which of the following products comes closest to having a perfectly inelastic demand? bus rides gasoline iPhones cholesterol medication in general

cholesterol medication in general

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using

command-and-control policies.

Governments grant patents to

compensate firms for research and development costs.

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

complements in consumption. both luxury goods. substitutes in consumption. both inferior goods.

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

complements in consumption.(Correct) both luxury goods. substitutes in consumption. both inferior goods.

Economists assume that the goal of consumers is to

consume as much as possible. do as little work as possible to survive. spend all their income. make themselves as well off as possible.

Economists assume that the goal of consumers is to

consume as much as possible. do as little work as possible to survive. spend all their income. make themselves as well off as possible. (Correct)

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus

consumer surplus increases from $0 to $31.

consumer surplus increases from $14 to $35.

The value of the marginal product of labor is the:

contribution of an additional unit of labor to a firm's revenue.

A game in which each player adopts its dominant strategy

could result in a Nash equilibrium.

As early societies became more complex, economies started to rely on

custom, centralized control of resources, and markets and trade

Customer discrimination occurs when

customers refuse to buy products produced by a racially diverse workforce.

Anchoring is relating a value to some other known value

even if the second value is irrelevant.

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?

decision nodes

n situations where new technologies are considered substitutes for workers, demand for these workers will ________, resulting in ________ in the equilibrium wage.

decrease; a decrease

The law of demand implies, holding everything else constant, that as the price of gelato

decreases, the quantity of gelato demanded will increase.

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase

demand curve

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

demand curve

inferior goods

demand decreases as income increases

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely

demand function budget constraint indifference curve demand schedule

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

demand function budget constraint indifference curve demand schedule

binding price floor

set floor above equilibrium price, will cause a surplus in the market

An omitted variable is a variable that:

does not cause other variables in a study to change when it changes. has been left out, and if included, would explain why the variables considered in a study are correlated. is purposely left out as it does not aid an economic analysis. is removed from a study as it can lead to the problem of reverse causality.

An omitted variable is a variable that:

does not cause other variables in a study to change when it changes. has been left out, and if included, would explain why the variables considered in a study are correlated. (Correct) is purposely left out as it does not aid an economic analysis. is removed from a study as it can lead to the problem of reverse causality.

A monopoly firm is the only seller of a good or service that

does not have a close substitute.

The demand curve for most goods is normally:

downward sloping. parallel to the horizontal axis. upward sloping. parallel to the vertical axis.

The demand curve for most goods is normally:

downward sloping. (Correct) parallel to the horizontal axis. upward sloping. parallel to the vertical axis.

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

everyone will buy a ticket except for Esther.

A Nash equilibrium occurs if ________.

each player chooses strategies that are mutual best responses

In a simultaneous move game, ________.

each player has to make his choice without knowing his rival's choice

________ is maximized in a competitive market when marginal benefit equals marginal cost.

economic surplus

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

economies of scale.

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

elastic

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

elastic. perfectly elastic. inelastic. unit elastic.

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

elastic. (Correct) perfectly elastic. inelastic. unit elastic.

Which of the following is an example of a common resource? public transportation lions in a zoo a college education elephants in the wild

elephants in the wild

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of the time and money spent on the festival

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of the time and money spent on the festival.

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of the time and money spent on the festival. the cost of the festival ticket only. the value of the time spent at the festival. zero because there are no overhead costs for an outdoor festival. the enjoyment you receive from going to the festival.

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of the time and money spent on the festival. (Correct) the cost of the festival ticket only. the value of the time spent at the festival. zero because there are no overhead costs for an outdoor festival. the enjoyment you receive from going to the festival.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set

equal to the marginal external cost at the economically efficient level of pollution.

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price.

If fixed costs do not change, then marginal cost

equals the change in variable cost divided by the change in output.

opportunity costs

equals value of the next best alternative to choice you make (i.e. Sara McLachlan commercial)

In economics, the term ________ means "additional" or "extra."

equity Correct marginal optimal allocative

In economics, the term ________ means "additional" or "extra."

equity marginal optimal allocative

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are

examples of rent seeking.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

Alex is a non-union employee in a factory. If the union negotiates certain benefits for the employees, Alex enjoys all the benefits although he does not pay the union fee. His behavior is an example of ________.

free-riding

A ________ is an extensive -form representation of a game.

game tree

An item has utility for a consumer if it

generates enjoyment or satisfaction

An item has utility for a consumer if it

generates enjoyment or satisfaction.

An item has utility for a consumer if it

generates enjoyment or satisfaction. is something everyone else wants. has a high price. is scarce.

An item has utility for a consumer if it

generates enjoyment or satisfaction.(Correct) is something everyone else wants. has a high price. is scarce.

Most economists believe that a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Which of the following factors is not another factor that explains part of this gap?

geographic location

A patent

gives a firm the exclusive right to a new product for 20 years from the date the product is invented.

A positive externality ________.

gives rise to external benefits

When there is an externality in a market

government intervention may increase economic efficiency.

A good is said to have a relatively elastic demand if the value of price elasticity is:

greater than 1

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:

greater than 1. less than 1. equal to 0. equal to 1.

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:

greater than 1. less than 1. equal to 0. equal to 1.(Correct )

The buyers of a good will want to purchase it as long as their willingness to pay for the good is

greater than or equal to the price

A profit maximizing monopoly's price is

greater than the price that would prevail if the industry was perfectly competitive.

Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup. To the Ruiz family,

hamburgers and ketchup are complements.

Trade

has been a feature of nearly all economies

In an extensive-form game, payoff to a player is usually higher if ________.

he is the first mover

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers more money to less, ________.

he will always accept any offer made to him

Compensating differentials are

higher wages that compensate workers for unpleasant aspects of a job.

By definition, economics is the study of

how to make money in the stock market. how to make money in a market economy. the choices people make to attain their goals, given their scarce resources. (Correct ) supply and demand

A person's stock of skills to produce economic value is referred to as:

human capital

number of consumers in market

i.e. population growth means demand would shift right

technology

if a new production process makes it easier to produce a particular good, supply increases (shifts right)

input prices

if costs to produce increase, supply decreases (shifts left)

A market economy benefits from market power

if firms with market power do research and development with the profits earned.

efficient

if social surplus is maximized

If a good has a price elasticity of demand of -3, it implies that:

if the income of the consumer increases by 1%, the quantity demanded of that good will increase by 3%. if the price of the good increases by 3%, the quantity demanded of the good will increase by 1%. if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%. if the income of the consumer increases by 3%, the quantity demanded of that good will increase by 1%.

If a good has a price elasticity of demand of -3, it implies that:

if the income of the consumer increases by 1%, the quantity demanded of that good will increase by 3%. if the price of the good increases by 3%, the quantity demanded of the good will increase by 1%. if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%. (Correct ) if the income of the consumer increases by 3%, the quantity demanded of that good will increase by 1%.

If a good has a price elasticity of demand of -3, it implies that:

if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%.

The combined effect (both income and substitution) of a wage increase is that

if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that

in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.

income and substitution effects

income and substitution effects consumption effect price effect income effect only or substitution effect only but not both effects

income and substitution effects (Correct) consumption effect price effect income effect only or substitution effect only but not both effects

shifts in demand

income, prices of other goods, number of consumers, expectations, preferences/tastes

A Pigouvian tax is a tax designed to ________.

induce producers generating negative externalities to reduce production

A firm's demand for labor curve is also called its

marginal revenue product of labor curve.

A horizontal merger

is a merger between firms in the same industry.

A supply schedule

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

Willingness to pay:

is equal to the price of the highest-priced goods in a consumption bundle. is equal to the price of the lowest-priced goods in a consumption bundle. is the highest price that a buyer is willing and able to pay for a unit of good. is the lowest price that a buyer is willing and able to pay for a unit of good

Willingness to pay:

is equal to the price of the highest-priced goods in a consumption bundle. is equal to the price of the lowest-priced goods in a consumption bundle. is the highest price that a buyer is willing and able to pay for a unit of good. (Correct) is the lowest price that a buyer is willing and able to pay for a unit of good

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

A dominant strategy

is one that is the best for a firm, no matter what strategies other firms use.

Willingness to pay:

is the highest price that a buyer is willing and able to pay for a unit of good.

If there is pollution in producing a product, then the market equilibrium price

is too low and equilibrium quantity is too high.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

its price.

Two goods are said to be substitutes when a fall in the price of one good

leads to a left shift in the demand for the other good. leads to a right shift in the demand for the other good. doesn't affect the demand for the other good. leads to a rise in the price of the other good.

Two goods are said to be substitutes when a fall in the price of one good

leads to a left shift in the demand for the other good. (Correct) leads to a right shift in the demand for the other good. doesn't affect the demand for the other good. leads to a rise in the price of the other good.

Two goods are said to be complements when a fall in the price of one good:

leads to a right shift in the demand for the other good.

The wage rate is the opportunity cost of

leisure

The substitution effect of a wage increase is observed when

leisure's higher opportunity cost causes workers to take less leisure and work more.

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one. greater than one. one. greater than the absolute value of the slope of the demand curve.

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one. one. greater than one. greater than the absolute value of the slope of the demand curve.

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one. (Correct) greater than one. one. greater than the absolute value of the slope of the demand curve.

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one. (Correct) one. greater than one. greater than the absolute value of the slope of the demand curve.

The difference between the ________ and the ________ from the sale of a product is called producer surplus.

lowest price a firm would have been willing to accept; price it actually receives

Economists assume that the goal of consumers is to

make themselves as well off as possible

In economics, the term ________ means "additional" or "extra."

marginal

The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is the value of the:

marginal product of the worker should be equal to or greater than the wage rate.

The demand by all the consumers of a given good or service is the ________ for the good or service.

market demand

A carbon tax which is designed to reduce pollution is an example of a

market-based policy.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

maximizing behavior. economizing behavior. the price constraint. the budget constraint.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

maximizing behavior. economizing behavior. the price constraint. the budget constraint.(Correct )

consumer surplus (CS)

measure of consumer welfare equals willingness to pay - price

producer surplus

measure of producer welfare equals price - willingness to sell

Christine works as a receptionist in an office. She is not supposed to use the Wi-Fi connection provided by the company to access social-networking Web sites. However, she often uses the Wi-Fi to access these Web sites because her browsing activities are not monitored by her employer. This is an example of ________.

moral hazard

Joseph starts driving with much less care after buying car insurance. His behavior is an example of ________.

moral hazard

Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________.

moral hazard

More people started building houses in earthquake-prone regions when the government of Polonia launched an insurance program for houses in this region. This is an example of ________.

moral hazard

When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

moral hazard.

perfectly elastic. relatively inelastic. unit elastic. More information is needed to answer the question

perfectly elastic. relatively inelastic. (Correct) unit elastic. More information is needed to answer the question

If firms do not increase their quantity supplied when price changes, then supply is

perfectly inelastic

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

perfectly inelastic. inelastic. unit elastic. elastic.

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

perfectly inelastic. inelastic. (Correct) unit elastic. elastic.

For which of the following firms is patent protection of vital importance? software firms auto makers pharmaceutical firms furniture producers

pharmaceutical firms

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot leftward along the vertical axis.

A decrease in the price of either one or the other good will cause a consumer's budget constraint to

pivot rightward (pivot out)

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease on the price of milk will cause the budget constraint to:

pivot rightward (pivot out) along the horizontal axis

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward along the horizontal axis.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis. shift to the left.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis.(Correct ) shift to the left.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot rightward along the vertical axis. pivot leftward along the vertical axis. pivot rightward along the horizontal axis. pivot leftward along the horizontal axis.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot rightward along the vertical axis. pivot leftward along the vertical axis. (Correct) pivot rightward along the horizontal axis. pivot leftward along the horizontal axis.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to

pivot rightward along the vertical axis. pivot leftward along the horizontal axis. pivot rightward along the horizontal axis. pivot leftward along the vertical axis.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to

pivot rightward along the vertical axis. pivot leftward along the horizontal axis. pivot rightward along the horizontal axis. pivot leftward along the vertical axis.(Correct)

A decrease in the price of either good will cause a consumer's budget constraint to:

pivot rightward.

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint

pivots leftward (pivot in) without a change in the intercept on the horizontal axis

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

pivots leftward without a change in the intercept on the horizontal axis.

A game is called a simultaneous move game if ________.

players choose their actions at the same time

Economic models do all of the following except

portray reality in all its minute details

Economic models do all of the following except make economic ideas explicit and concrete for use by decision makers. portray reality in all its minute details. answer economic questions. simplify some aspect of economic life.

portray reality in all its minute details.

The price elasticity of an upward-sloping supply curve is always

positive

The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________.

positive externality

The percentage change in the quantity demanded of a good due to a percentage change in its price is referred to as the:

price elasticity of demand.

As the ________ increases, ________.

price of a good; its quantity demanded decreases quantity demanded of a good; its price increases quantity demanded of a good; its price decreases price of a good; its quantity demanded increases

As the ________ increases, ________.

price of a good; its quantity demanded decreases (Correct) quantity demanded of a good; its price increases quantity demanded of a good; its price decreases price of a good; its quantity demanded increases

A market demand curve reflects the

private benefits of consuming a product.

The social cost of producing a good that generates negative externalities is the sum of the ________.

private cost and external costs of production

A market supply curve reflects the

private costs of producing a good or service.

1st hat $24 2nd hat $30 3rd hat $38 4th hat $46 The table to the right lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the price of cowboy hats decreases from $38 to $30

producer surplus will fall from $22 to $6.

The demand by all the consumers of a given good or service is the ________ for the good or service.

quantity demanded law of demand scheduled demand market demand

The demand by all the consumers of a given good or service is the ________ for the good or service.

quantity demanded law of demand scheduled demand market demand (Correct)

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.

Which of the following displays these two characteristics: nonrivalry and excludability?

quasi-public goods

rationally

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ___________, meaning they make the best decisions given their knowledge of the costs and benefits

rationally

rationally equitably selfishly emotionally

rationally (Correct) equitably selfishly emotionally

A Nash equilibrium is

reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services.

A budget constraint

reflects the desire by consumers to increase their income. refers to the limited amount of income available to consumers to spend on goods and services. shows the prices that a consumer chooses to pay for products he consumes. represents the bundles of consumption that make a consumer equally happy.

A budget constraint

reflects the desire by consumers to increase their income. refers to the limited amount of income available to consumers to spend on goods and services.(Correct ) shows the prices that a consumer chooses to pay for products he consumes. represents the bundles of consumption that make a consumer equally happy.

willingness to sell

reflects the lowest amount producers would accept to sell product represented by supply curve

Central control of economies

regulated resources like land and water

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, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

relatively inelastic.

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.

relativity slope elasticity efficiency

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.

relativity slope elasticity (Correct ) efficiency

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?

research finds that consumption of olive oil reduces the risk of heart disease

___________ occurs when the direction of cause and effect is mixed up in a study

reverse causality

A tragedy of the commons occurs when a resource is

rival and non-excludable.

Marginal utility is the

satisfaction achieved when a consumer has had enough of a product. total satisfaction received from consuming a given number of units of a product. extra satisfaction received from consuming one more unit of a product. average satisfaction received from consuming a product.

Marginal utility is the

satisfaction achieved when a consumer has had enough of a product. total satisfaction received from consuming a given number of units of a product. extra satisfaction received from consuming one more unit of a product. (Correct ) average satisfaction received from consuming a product.

Which of the following is an example of a common resource?

sea otters in the coastal waters of the Pacific Ocean

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

sequential games.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. (Correct) the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant.

Marginal revenue product for a perfectly competitive seller is equal to

the change in total revenue that results from hiring another worker.

If the price of a good increases, ________.

the consumer surplus decreases

If the price of music downloads was to decrease, then

the demand for MP3 players would increase.

The term "derived demand" refers to

the demand for a factor of production that is derived from the demand for the good the factor produces.

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

the demand for aspirin is inelastic.

As output increases

the difference between average total cost and average variable cost decreases.

The firm's gain in profit from hiring another worker is

the difference between marginal revenue product and the wage of the worker.

Consumer surplus is

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

Elasticity is:

the difference of the percentage change in two variables. the product of the percentage change in two variables. the ratio of the percentage change in two variables. the sum of the percentage change in two variables.

Elasticity is:

the difference of the percentage change in two variables. the product of the percentage change in two variables. the ratio of the percentage change in two variables. (Correct ) the sum of the percentage change in two variables.

Elasticity is:

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up.

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up. the cost of production varies depending on the opportunity for technological application. the economic cost of using a factor of production is the alternative use of that factor that is given up. in a market economy, taking advantage of profitable opportunities involves some money cost. taking advantage of investment opportunities involves costs.

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up. the cost of production varies depending on the opportunity for technological application. the economic cost of using a factor of production is the alternative use of that factor that is given up. (Correct ) in a market economy, taking advantage of profitable opportunities involves some money cost. taking advantage of investment opportunities involves costs.

A firm's primary interest when it hires an additional worker is

the extra revenue the firm realizes from hiring that worker.

The substitution effect of an increase in the price of Raisin Bran refers to

the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. the decrease in the demand for Raisin Bran when its price rises. the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

The substitution effect of an increase in the price of Raisin Bran refers to

Four roommates have moved into an apartment. However, none of them cleans the apartment thinking that the others will do it. This is an example of ________.

the free-rider problem

If the income elasticity of demand is positive, but less than 1 then

the good is nomral and a necessity EX: bread

The income effect of a wage increase is observed when

the higher wage income causes workers to take more leisure and work less.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

the income effect. the substitution effect. the elasticity effect. the deadweight loss effect.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

the income effect. (Correct) the substitution effect. the elasticity effect. the deadweight loss effect.

A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." This statement is false because

the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Harberger found that

the loss of economic efficiency in the U.S. economy due to market power was less than 1 percent of the value of production.

Consumers are willing to purchase a product up to the point where

the marginal benefit of consuming a product is equal to its price.

The shape of the average total cost curve is determined by the shape of

the marginal cost curve.

In the world oil market, oil is supplied up to the point where

the marginal cost of the last barrel is just equal to the price buyers are willing to pay for that last barrel.

When a Pigouvian tax is imposed, ________.

the marginal private cost curve shifts upward

If positive externalities are present in a free market, ________ at any output level.

the marginal social benefit of production exceeds marginal private benefit

A negative externality exists if

the marginal social cost of producing a good or service exceeds the private cost.

The demand curve for the monopoly's product is

the market demand for the product.

willingness to pay

the maximum amount you would pay for the good (your true value of that good) represented by demand curve

Willingness to pay measures

the maximum price that a buyer is willing to pay for a good.

A possible advantage of a horizontal merger for the economy is that

the merged firm might reap economies of scale which could translate into lower prices.

Because a monopoly's demand curve is the same as the market demand curve for its product

the monopoly must lower its price to sell more of its product.

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

the moral hazard problem.

A budget constraint is a straight line because:

the opportunity cost of buying each of the goods changes along the constraint. a consumer faces a fixed price of both goods that do not change with changes in consumption. a consumer has a limited money income. the tastes and preferences of the consumer change along the constraint.

A budget constraint is a straight line because:

the opportunity cost of buying each of the goods changes along the constraint. a consumer faces a fixed price of both goods that do not change with changes in consumption.(Correct ) a consumer has a limited money income. the tastes and preferences of the consumer change along the constraint.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases

the opportunity cost of buying shirts increases. the opportunity cost of buying sweaters increases. the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases

the opportunity cost of buying shirts increases. the opportunity cost of buying sweaters increases. (Correct ) the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good.

Assume that an individual spends his income on sweaters and shirt. If the price of a sweater increase

the opportunity cost of buying sweater increases

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good. the opportunity cost of buying sweaters increases. the opportunity cost of buying shirts increases.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good. the opportunity cost of buying sweaters increases. (Correct) the opportunity cost of buying shirts increases.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

the opportunity cost of buying sweaters increases.

The slope of a budget constraint represents

the opportunity cost of one good in terms of another

The slope of a budget constraint represents:

the opportunity cost of one good in terms of another.

To calculate the price elasticity of demand we divide

the percentage change in price by the percentage change in quantity demanded. the average price by the average quantity demanded. rise by the run. the percentage change in quantity demanded by the percentage change in price.

To calculate the price elasticity of demand we divide

the percentage change in quantity demanded by the percentage change in price.

If the demand for a steak is unit elastic, then

the percentage change in quantity demanded is equal to the percentage change in price.

Price elasticity of demand measures

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

The price elasticity of supply is equal to

the percentage change in quantity supplied divided by the percentage change in price.

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

The attainable production points on a production possibilities curve are

the points along and inside the production possibility frontier.

Mr. Smith put his laptop up for sale. He is aware of the fact that the laptop malfunctions frequently. However, none of the potential customers who came to buy the laptop were able to discover the problem and one of them actually bought it at a remunerative price. This occurred due to ________.

the presence of asymmetric information

Overfishing leading to a rapid depletion of the stock of fish is an example of ________.

the tragedy of the commons

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the price constraint. the budget constraint. maximizing behavior. economizing behavior.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the price constraint. the budget constraint.(Correct) maximizing behavior. economizing behavior.

The most profitable price for a monopolist is

the price for which marginal revenue equals marginal cost.

The slope of a budget constraint represents

the price of the good measured along the horizontal axis. the price of the good measured along the vertical axis. the money income of the consumer. the opportunity cost of one good in terms of another

The slope of a budget constraint represents

Suppliers will be willing to supply a product only if

the price received is at least equal to the additional cost of producing the product.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

the principle-agent problem.

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will 4 16 16 22 The producer with the least opportunity cost of making a taco is

the producer who gives up the fewest enchiladas to make a taco.

Product & Production per week: Producer Shirts Pants Dylan 12 9 Justin 4 8 16 17 The producer with the least opportunity cost of making a shirt is

the producer who gives up the fewest pants to make a shirt.

If the demand for cell phone service is inelastic, then

the quantity demanded does not change in response to changes in price. the percentage change in quantity demanded is equal to the percentage change in price. the percentage change in quantity demanded is less than the percentage change in price (in absolute value). the percentage change in quantity demanded is greater than the percentage change in price (in absolute value)

If the demand for cell phone service is inelastic, then

the quantity demanded does not change in response to changes in price. the percentage change in quantity demanded is equal to the percentage change in price. the percentage change in quantity demanded is less than the percentage change in price (in absolute value). (Correct ) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value)

The Law of Demand states that:

the quantity demanded of a commodity varies inversely with the price of the commodity. the demand for a commodity always equals the supply of the commodity. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market. the demand for a commodity is mostly influenced by consumers' income.

The Law of Demand states that:

the quantity demanded of a commodity varies inversely with the price of the commodity. (Correct) the demand for a commodity always equals the supply of the commodity. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market. the demand for a commodity is mostly influenced by consumers' income.

the law of demand implies, holding everything else constant, that as the price of bagels increase

the quantity of bagels demanded will decrease

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will decrease.

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will increase. the demand for bagels will increase. the demand for bagels will decrease. the quantity of bagels demanded will decrease

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will increase. the demand for bagels will increase. the demand for bagels will decrease. the quantity of bagels demanded will decrease(Correct )

If, in a competitive market, marginal benefit is less than marginal cost

the quantity sold is greater than the equilibrium quantity.

An individual's labor supply curve shows

the relationship between wages and the quantity of labor that she is willing to supply

A payoff matrix shows ________.

the return from each action that players can take in a game

When there is a positive externality

the social benefit received by consumers is greater than the private benefit.

What is behavioral economics?

the study of situations in which people act in ways that are not economically rational

If Molly Bee increases her work hours when her wage increases, then

the substitution effect of the wage increase outweighs the income effect.

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

the substitution effect. the income effect. the deadweight loss effect. the elasticity effect.

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

the substitution effect. (Correct) the income effect. the deadweight loss effect. the elasticity effect.

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum.

Economic efficiency in a free market occurs when

the sum of consumer surplus and producer surplus is maximized.

If, in the market for oranges, the supply has increased then

the supply curve for oranges has shifted to the right.

If in the market for peaches the supply curve has shifted to the left,

the supply of peaches has decreased.

Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of

the tragedy of the commons.

Invisible Hand Theorem

the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium and automatically is the "invisible hand"

Which of the following factors will not cause the labor demand curve to shift? a change in the price of the product produced with labor changes in technology increases in human capital the wage rate

the wage rate

A demand curve shows

the willingness of consumers to buy a product at different prices.

If the income elasticity of demand is negative

then the good is inferior EX: high-fat meat

If income elasticity of demand is positive, but greater than 1

then the good is normal and a luxury EX: caviar

If the market for a product is broadly defined, then

there are few substitutes for the product and the demand for the product is relatively inelastic.

A correlation between two variables implies that:

there is a cause-effect relationship between the two variables. when one variable changes, the other variable always changes by exactly the same amount. it is impossible to measure one variable without measuring the other. there is a mutual relationship between both the variables.

A correlation between two variables implies that:

A correlation between two variables implies that

there is a mutual relationship between both the variables

n a report made to the U.S. Congress in 2001, the National Academy of Sciences cautioned that if fuel economy encourages the production of smaller and lighter cars, "Some additional traffic fatalities would be expected." This statement suggests that

there is a tradeoff between safety and fuel economy.

Normative economic statement

this is an opinion, not a fact

The function of the agent in the principal-agent relationship is

to perform tasks for the principal.

Health insurance companies impose deductibles on policies and co-payments on claims

to reduce moral hazard problems.

surplus

too much stuff (price too high) quantity supplied > quantity demanded (excess supply) expect price to decrease

Average total cost is equal to

total cost divided by the level of output.

Which of the following costs will not change as output changes? marginal cost total fixed cost total variable cost average fixed cost average variable cost

total fixed cost

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

vertical.

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the ________.

tragedy of the commons

Private solutions to the problem of externalities are most likely when

transactions costs are low and the number of bargaining parties is small.

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered

transactions costs.

"An increase in the price of gasoline will increase the demand for hybrid vehicles" This statement is an example of a positive economic statement

true

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost

true

ultimatum game

Scenario: Robert and Alice are participating in a reality show on television. Robert is offered an amount of $500 and told that he can keep the money provided he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money. Refer to the scenario above. This is an example of a(n) ________.

ultimatum game

The points outside the production possibilities frontier are

unattainable

Economists assume that rational people do all of the following except

undertake activities that benefit others and hurt themselves

Economists assume that rational people do all of the following except

undertake activities that benefit others and hurt themselves.

indirect responses

unintended consequences

Economists assume that rational people do all of the following except

use all available information as they act to achieve their goals. respond to economic incentives. (Correct) undertake activities that benefit others and hurt themselves. weigh the benefits and costs of all possible alternative actions.

Economists assume that rational people do all of the following except

use all available information as they act to achieve their goals. respond to economic incentives. undertake activities that benefit others and hurt themselves. weigh the benefits and costs of all possible alternative actions.

Positive economic statements

usually do not include the word "should"

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.

Worker discrimination occurs when

workers refuse to work with persons of a different race.

A product is considered to be rivalrous if

your consumption of the product reduces the quantity available for others to consume.

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

zero. more than one. less than one. equal to the absolute value of the slope of the demand curve

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

zero. (Correct) more than one. less than one. equal to the absolute value of the slope of the demand curve

The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. At the equilibrium price of $15 consumers are willing to buy 80 pounds of tiger shrimp. Is this an economically efficient quantity?

Yes, because $15 is the price where the marginal benefit is equal to the marginal cost.

How do the income and substitution effects respond when there is a change in the price of a good? What factors go into this answer?

- if a good increases in price: 1. The good is relatively more expensive than alternative goods, and people will switch to other goods which are relatively cheaper. (substitution effect) 2. The increase in price reduces disposable income and this lower income may reduce demand. (income effect) - the substitution effect states that an increase in the price of a good will encourage consumers to buy alternative goods. The substitution effect measures how much the higher price encourages consumers to buy different goods, assuming the same level of income. - the income effect looks at how the price change affects consumer income. If price rises, it effectively cuts disposable income, and there will be lower demand.

What is the difference between goods that are substitutes and complements? How does this relate to their cross-price elasticity?

- in economics, a complementary good or complement is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. - conversely, the demand for a good is decreased when the price of another good is increased. - cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus.

What does it mean for an economist to say that people are rational?

- individuals look for and pursue opportunities to increase their utility - people respond to incentives - people will use all available information before acting to achieve their goals - it is assumed people weigh their costs and benefits.

Explain comparative advantage and explain how it is related to opportunity cost

- it is being able to produce goods by using fewer resources, at a lower opportunity cost, that gives countries a comparative advantage - the gradient of a PPF reflects the opportunity cost of production. Increasing the production of one good means that less of another can be produced

Difference between positive and normative analysis

- positive economics - objective and fact based (what IS) - normative economics - subjective and value based (what SHOULD be)

Difference between a scientific approach to evaluating markets and a philosophical approach to evaluating markets

- scientific methods can be tested and proven with data and experiments

Scarcity

- the problem that occurs in an economy when limited resources collide with unlimited wants - leads to opportunity cost - caused by poor distribution of resources, rapid increase in demand, or rapid decrease in supply

Supply Curve

- the supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied for a given period of time - in a typical representation, the price will appear on the left vertical axis, the quantity supplied on the horizontal axis; has a positive slope.

Invisible Hand Theorem

- the unobservable market force that moves the demand and supply of goods in a free market to reach equilibrium and automatically is the "invisible hand"

3 types of systems used to govern resource allocation

- traditional - command - market

3 central questions that scarcity creates for an economy

- what will be produced? - how will it be produced? - for whom will it be produced?

What does it mean to make decisions on the margin?

- when you decide the benefit of making/consuming one more of something, you are thinking on the margin - deciding by thinking on the margin involves comparing the marginal opportunity costs and marginal benefits - deciding to do less of one thing and more of something else, not all of one thing and none of the other.

What is the relationship between price elasticity and total revenue?

-the total revenue test is a means for determining whether demand is elastic or inelastic - if an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded.

When trying to assess your economic well-being you should A. Compare your situation to that of most of the people alive today. B. Compare yourself to Donald Trump. C. Compare yourself to your neighbors. D. Compare yourself to your parents. E. Not compare yourself to others because that is foolish.

Which of the following statements is true of the scientific method? When a researcher looks at a large data set, she is more likely to jump to the wrong conclusions. The larger the size of the data set, the greater the scope of inaccuracy in an analysis. Arguments based on a few anecdotes are mostly true. Empirical arguments are more credible when they are based on a large data set.

Empirical arguments are more credible when they are based on a large data set.

(T/F) Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

False

The video describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to multiplication to division.

Which of the following is a normative economic statement? When the price of wheat falls, the quantity of wheat purchased rises. The current low price of wheat is the result of increased worldwide supply. When the price of wheat falls, the cost of wheat-based products falls. The price of wheat is too low.

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