Econ Cumulative Final

When the local used bookstore prices economics books at $15 each, it generally sells 70 books per month. If it lowers the price to $7, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about

0.34, and an increase in price from $7 to $15 results in an increase in total revenue.

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

1.

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

1.33.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

1.43, and an increase in the price will cause hotels' total revenue to decrease.

Approximately what percentage of the world's economies experience scarcity?

100%

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded.

If a binding price floor is imposed on the video game market, then

A surplus of video games will develop.

Which of the following statements is not correct?

Absolute advantage is the driving force of specialization.

The principle that trade can make everyone better off applies to

All of the above (individuals, families, countries)

The circular-flow diagram

All of the above are correct (a. is an economic model. b. incorporates two types of decision makers: households and firms. c. represents the flows of inputs, outputs, and dollars.)

The incidence of a tax falls more heavily on

All of the above are correct. (a. consumers than producers if demand is more inelastic than supply. b. producers than consumers if supply is more inelastic than demand. c. consumers than producers if supply is more elastic than demand.)

The price elasticity of demand for bread

All of the above are correct. (a. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. b. depends, in part, on the availability of close substitutes for bread. c. reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.)

When a binding price floor is imposed on a market,

All of the above are correct. (a. price no longer serves as a rationing device. b. the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor. c. only some sellers benefit.)

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

All of the above are correct. (a. the two countries' combined output of both goods will be higher than it would be in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade.)

The principle that "people face tradeoffs" applies to

All of the above are correct. (individuals. families. societies.)

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

Belarus should export linen to Russia.

A circular-flow diagram is a model that

Both (a) and (b) are correct. a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized.

Brenda is an excellent baker and Floyd has a plentiful farm. If Floyd trades eggs and butter to Brenda for some of Brenda's bread and pastries,

Both Floyd and Brenda are made better off by trade.

If consumers often purchase muffins to eat while they drink their lattes at local coffee shops, what would happen to the equilibrium price and quantity lattes if the price of muffins rises?

Both the equilibrium price and quantity would decrease.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise?

Both the equilibrium price and quantity would decrease.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

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

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

People are likely to respond to a policy change

If the policy changes either the costs or benefits of their behavior.

Economists are particularly adept at understanding that people respond to

Incentives.

The production possibilities frontier illustrates

None of the above is correct. (a. the trade-off between efficiency and equality. b. the combination of output that an economy should produce. c. the combination of output that each member of society should consume.)

The invisible hand works to promote general well-being in the economy primarily through

People's pursuit of self-interest.

If Shawn can produce donuts at a lower opportunity cost than Sue, then

Shawn has a comparative advantage in the production of donuts.

If Shawn can produce more donuts in one day than Sue can produce in one day, then

Shawn has an absolute advantage in the production of donuts.

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.

She should replace the carpeting but not replace the roof.

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

9. Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The equilibrium quantity is less than the socially optimal quantity.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

The number of firms selling laptop computers decreases.

3. What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases.

Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin has determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle of economics?

Trade can make everyone better off

Which of the following demonstrates the law of supply?

When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

Which of these statements best represents the law of demand?

When the price of a good decreases, buyers purchase more of the good.

An increase in the price of oranges would lead to

a movement up and to the right along the supply curve for oranges.

7. Taxes cause deadweight losses because taxes

a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. D. ALL OFF THE ABOVE ARE CORRECT

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

amount of the other good that must be given up.

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in

an 18 percent increase in the quantity demanded.

Which of the following would shift the demand curve for gasoline to the right?

an increase in consumer income, assuming gasoline is a normal good

A price ceiling will be binding only if it is set

below the equilibrium price.

A surplus results when a

binding price floor is imposed on a market.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Price controls

can generate inequities of their own.

Positive statements are

claims about how the world is.

Normative statements are

claims about how the world should be.

3. Goods that are rival in consumption include both

common resources and private goods.

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of

crystal to increase.

5. The decrease in total surplus that results from a market distortion, such as a tax, is called a

deadweight loss.

A leftward shift of a demand curve is called a(n)

decrease in demand.

A decrease in input costs to firms in a market will result in a(n)

decrease in equilibrium price and an increase in equilibrium quantity.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Which of the following events must cause equilibrium quantity to rise?

demand and supply both increase.

4. A tax levied on the buyers of a good shifts the

demand curve downward (or to the left).

Which of the following events must cause equilibrium price to fall?

demand decreases and supply increases

Normative statements are not

descriptive.

When the price of used cds is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used cds is

elastic, and her demand curve would be relatively flat.

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

equal to the socially optimal quantity

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.

6. A tax on a good

gives sellers an incentive to produce less of the good than they otherwise would produce

For an economist, the idea of making assumptions is regarded generally as a

good idea, since doing so helps to simplify the complex world and make it easier to understand.

3. If an externality is present in a market, economic efficiency may be enhanced by

government intervention.

Demand is elastic if the price elasticity of demand is

greater than 1.

7. Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

A good will have a more elastic demand, the

greater the availability of close substitutes

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good.

Which of the following sets of events must cause an increase in the price of a new house? (Assume that they are normal goods.)

higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population, and expectations of higher house prices in the future

In the circular-flow diagram,

households are sellers in the markets for the factors of production.

8. Deadweight loss measures the loss

in a market to buyers and sellers that is not offset by an increase in government revenue.

1. When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

14. In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

it is hard to estimate the market demand curve and thus charge the "right" corrective tax.

Economists make assumptions to

make a complex world easier to understand

The decisions of firms and households are guided by prices and self-interest in a

market economy.

Production is efficient if the economy is producing at a point

on the production possibilities frontier.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

What you give up to obtain an item is called your

opportunity cost.

1. When a good is excludable,

people can be prevented from using the good.

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that

people face trade-offs

The production possibilities frontier provides an illustration of the principle that

people face trade-offs.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs.

2. Research into new technologies provides a

positive externality, and too few resources are devoted to research as a result.

Positive statements are not

prescriptive.

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

In a free, competitive market, what is the rationing mechanism?

price.

2. Goods that are excludable include both

private goods and club goods.

For markets to work well, there must be

property rights

2. A tax on a good

raises the price that buyers effectively pay and lowers the price that sellers effectively receive.

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for

razors to increase.

1. When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied.

A marginal change is a

small, incremental adjustment.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods.

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is

the enjoyment he would have received if he had watched tv with his friends.

10. Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.

8. Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

the market equilibrium quantity will not be the socially optimal quantity.

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.

In economics, the cost of something is

what you give up to get it.