Econ Ch.1-4

If the number of sellers in a market increases, then the

supply in that market will increase.

A rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

For a good that is a luxury, demand

tends to be elastic.

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market? To promote efficiency To protect an industry from foreign competition To promote equality To enforce property rights

To protect an industry from foreign competition

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

in order to consume beyond its PPF, the United States should produce more pork than what it requires and export some of it to Mexico.

For which of the following goods is the income elasticity of demand likely highest?

Diamonds

If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by

15 blankets and 35 meals.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded.

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?

A decrease in the price of wool shirts and a decrease in the price of raw cotton

Which of these activities will most likely impose an external cost? An athlete works out at a gym. A construction worker eats a hotdog during her lunch break. A postal worker smokes a cigarette in a crowded break room. A young father pushes his baby in a stroller.

A postal worker smokes a cigarette in a crowded break room.

Which of these activities will most likely result in an external benefit? A college student buys a deck of cards to play solitaire in her dorm room. A ten-year-old uses his allowance to buy new Nike shoes. An elderly woman plants a flower garden on the vacant lot next to her house. An executive purchases a book to read on a business trip.

An elderly woman plants a flower garden on the vacant lot next to her house.

A group of buyers and sellers of a particular good or service is called

a market

If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés?

Both the equilibrium price and quantity would increase.

Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?

Buyers would not be willing to buy as much as before at each relevant price.

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

True or False If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product.

False

True or False If one producer has the absolute advantage in the production of all goods, then that same producer will have the comparative advantage in the production of all goods as well.

False

True or False Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.

False

Which of the following is an important cause of inflation in an economy?

Growth in the quantity of money in the economy

If the price elasticity of supply is 1.2, and price increased by 5 percent, quantity supplied would

Increase by 6 percent.

Assume Lianna buys coffee beans in a competitive market. It follows that

Lianna cannot influence the price of coffee beans even if he buys a large quantity of them.

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

Consider two individuals, Marquis and Serena each of whom would like to wear sweaters and eat tasty food. The gains from trade between Marquis and Serena are most obvious in which of the following cases?

Marquis's skills are such that he can produce only sweaters, and Serena's skills are such that she can produce only tasty food.

For which pairs of goods is the cross-price elasticity most likely to be positive? a. Peanut butter and jelly b. Digital college textbooks and iPhones c. Bicycle frames and bicycle tires d. Pens and pencils

Pens and pencils

The production possibilities frontier illustrates

The combinations of output that an economy can produce.

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

Which of the following would likely be studied by a microeconomist rather than a macroeconomist? The effect of foreign direct investment on economic growth The effect of a war on government spending The effect of a sales tax on the cigarette industry The effect of an investment tax credit on the economy's capital stock

The effect of a sales tax on the cigarette industry

Which of the following events would cause the price of oranges to fall?

The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

Which of the following events would cause a movement upward and to the right along the supply curve for mangos?

The price of mangos rises.

Which of the following is not a determinant of the demand for a particular good?

The prices of the inputs used to produce the good

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

They choose not to trade with one another.

An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.

True

True of False Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie for 1/3 gallon of ice cream.

True

True or False Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

True

True or False Demand is elastic if the price elasticity of demand is greater than 1.

True

True or False Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.

True

True or False Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie for 1/3 gallon of ice cream.

True

True or False If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

True

True or False The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

True

True or FalseTo produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

True

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is

Unit elastic

Which of the following is an example of a normative, as opposed a to positive, statement? Universal healthcare would be good for U.S. citizens. A law requiring the federal government to balance its budget would increase economic growth. An increase in the cigarette tax would cause a decrease in the number of smokers. A decrease in the minimum wage would decrease unemployment.

Universal healthcare would be good for U.S. citizens.

For which of the following goods is the income elasticity of demand likely lowest? a. Water b. Fresh fruit c. Sapphire pendant necklaces d. Filet mignon steaks

Water

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

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

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could

benefit both Celia and Ryan.

Positive statements are

claims about how the world is.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell.

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

fall by 50 percent.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

Economists make assumptions to

focus their thinking on the essence of the problem at hand.

Instead of conducting laboratory experiments to generate data to test their theories, economists often

gather data from historical episodes of economic change.

Emily and Betsey are economists. Emily thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Betsey thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Emily and Betsey

have different normative views about tax policy.

Goods produced abroad and sold domestically are called

imports

An increase in the overall level of prices in an economy is referred to as

inflation.

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other.

Goods with many close substitutes tend to have

more elastic demands.

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

The production possibilities frontier provides an illustration of the principle that

people face trade-offs

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

performing an experiment in an economic system.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

positive, and the good is a normal good.

A demand schedule is a table that shows the relationship between

price and quantity demanded.

The phenomenon of scarcity stems from the fact that

resources are limited.

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises.

The primary determinant of a country's standard of living is

the country's ability to produce goods and services.

The marginal benefit Sabrina gets from purchasing a third pair of gloves is

the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves.

A key determinant of the price elasticity of supply is the

time horizon

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.