ECON 202
Which of the following factors is likely to lead to an increase in the quantity demanded of pens?
A fall in the price of pens
Which of the following pairs of goods is most likely to have a positive cross-price elasticity?
A privately-owned car and public transportation
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium, quantity demanded equals quantity supplied.
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.
When trying to assess your economic well-being you should:
Compare your situation to that of most of the people alive today.
Which of the following best describes a good with perfectly elastic demand?
Even in the smallest increase in the price of the good will cause consumers to stop consuming it completely.
T/F If the price of a good is raised and total revenue increases, demand is elastic.
F INELASTIC
T/F Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market reduce revenue for drug dealers.
False
T/F Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."
False
Which of the following is a normative economic statement?
Farmers should not be allowed to grow and sell genetically-modified crops.
Trade
Has been a feature of nearly all economies
Hunter-gatherer societies allocated resources by a combination of
Individual decisions. Sharing customs. Organized hunting/gathering activity
Why has the number of people living on farms gone down so drastically from 1900?
Investment in capital such as tractors Process innovations such as mechanized planting and harvesting Process innovations such as herd immunization
With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services?
It has become more price elastic.
As early societies became more complex, economies started to rely
On custom. On centralized control of resources. On markets and trade.
People do not "feel" rich because
People always want more
Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?
Sales revenue decreased
Economics studies
Scarcity The social institutions used to address scarcity What to produce, how to produce it, and who gets it
The price of turkeys goes down at Thanksgiving even though demand increases because:
Supply increases by relatively more than demand because frozen turkeys are brought to market.
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.
When sellers sell goods in a market they are doing so because
The price is at least as much as the cost to produce.
Why aren't imports of roses from South America and Africa high year-round instead of just around Valentine's Day?
The spike in demand makes it profitable for producers with higher costs (like transportation) to enter the market. Flower production in the US is particularly low in February, so US-based supply is shifted leftward that month because of the climate.
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.
Which of the following can be derived from other assumptions of economics
Tradeoffs Opportunity costs
T/F Every individual, no matter how rich or poor, is faced with situations that require trade-offs.
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 The income effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.
True
T/F The more narrowly we define a market, the more elastic the demand for a product will be.
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 Testing with data enables economists to distinguish between good models and bad models.
True
What does the video say about scarcity?
We must find ways to deal with that scarcity Figures out the best set of social arrangements to address scarcity
Which of the following statements is CORRECT?
When both demand and supply decrease, the quantity decreases and the price might rise, fall, or remain the same.
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.
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.
Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?
a decrease in the price of cattle
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price of flour
Of the following, which is the best example of good with a perfectly inelastic demand?
a diabetic's demand for insulin
If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:
a higher price and a lower quantity
Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:
a lower price and the same quantity
If a decrease in income leads to a decrease in the demand for mac and cheese, then mac and cheese is
a normal good
In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. Consider this new, post-hurricane situation under previous, pre-hurricane equilibrium price. We would expect to see:
a shortage of oranges
The revenue received from the sale of ________ of a product is a marginal benefit to the firm.
an additional unit
Which of the following always raises equilibrium price?
an increase in demand combined with a decrease in supply
Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?
an increase in supply
Holding everything else constant, a decrease in the price of bicycles will result in
an increase in the quantity of bicycles demanded
Which of the following would cause a decrease in the supply of milk?
an increase the price of a product that producers sell instead of milk
Which of the following is a product innovation?
antibiotics
Comparative advantage means the ability to produce a good or service
at a lower opportunity cost than any other producer.
The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
budget constraint
We can derive the market demand for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer.
Causation occurs when:
change in one variable is the reason for the change in another variable.
A(n) ________ is represented by a leftward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.
decrease in demand; increase in quantity demanded
The demand curve for most goods is normally:
downward sloping
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:
equal to 1
When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity ________.
falls; decreases
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
Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family
hamburgers and chicken nuggets are substitutes
Price elasticity of demand measure
how responsive quantity demanded is to a change in price.
Price elasticity of demand measures
how responsive quantity demanded is to a change in price.
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
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 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?
income and substitution effects
Which of the following was not mentioned in the video as a driver of economic growth?
increased demand
Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is
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
inelastic
If demand is perfectly elastic, the absolute value of the price elasticity coefficient is
infinity
The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:
its price
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one
Which of the following goods is likely to have the lowest price elasticity of demand?
life-saving drugs
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
linear
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
Higher price elasticity of demand means that a consumer's demand is:
more responsive to price changes.
Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?
only individuals face scarcity; firms and the government do not
The highest valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
Which of the following pairs are likely to be considered complements?
pens and writing pads
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, the
people are rational
Cross-price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
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 (pivot out) along 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 (pivot in) without a change in the intercept on the horizontal axis.
Which of the following goods is likely to have the highest price elasticity of demand?
pizza
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
price; quantity; price
Assembly lines are an example of:
process innovation
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
relatively elastic
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic
A change in the quantity demanded of a good is:
represented by a movement along the demand curve.
Which of the following is a process innovation?
self checkout lines
Economic decline (negative growth) is represented on a production possibilities frontier model by the production possibility frontier
shifting inward
If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are
substitutes
After 2009, the price of tablets fell each year and manufacturers of tablets produced and sold more tablets each year. This result is because the
supply curve of tablets shifted rightward
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
When demand is elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
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.
If the demand for a steak is unit elastic, then
the percentage change in quantity demanded is equal to the percentage change in price.
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if
the price of the good changes
If a good has a price elasticity of demand equal to 0, ________.
the quantity demanded is completely unaffected by a change in its price
The Law of Demand states that:
the quantity demanded of a commodity varies inversely with the price of the commodity.
The law of demand implies, holding everything else constant, that as the price of bagels increases,
the quantity of bagels demanded will decrease.
Elasticity is
the ratio of the percentage change in two variables
Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that
the supply of swimming pool maintenance services has decreased.
When buyers and sellers operate in a competitive market, it is because
the value to consumers is at least as great as the cost to produce
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.
Consumers determine what gets made in the economy because
they buy things they like
T/F A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.
true
T/F When both demand and supply decrease, the quantity decreases and the price might rise, fall, or remain the same.
true
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued.