Econ Exam 1

If a good is normal, an increase in consumers' income would shift the _____

demand curve rightward.

Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or Pepsi products. Nita's demand for Coca-Cola will be relatively more ________, while Becky's demand will be relatively more ________.

inelastic; elastic

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

If a firm expects lower prices in the future

it will increase supply today

Price elasticity of demand measures the change in:

quantity demanded due to the change in price.

Due to a decline in demand and popularity, Ford Motor Company is planning to phase out traditional sedans such as 'Fusion' and 'Taurus' to focus on SUVs and trucks. Ford's sedans and trucks/SUVs are

substitutes-in-production.

When a hurricane rips through Florida, the price of oranges rises because the:

supply curve shifts to the left

Suppose the line you are standing in at a grocery checkout counter has not moved for 10 minutes. You notice a cashier opening a new one and inviting you to check out. Do you switch to the new cashier or stay put because you have already waited for 10 minutes?

switch, because the 10 minutes you waited is a sunk cost

Microeconomics is the study of _____

the economic behavior of individual decision makers.

The term ________ means "additional."

"marginal"

Which of the following lists only the factors that would cause a decrease in the supply of an item?

A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

Jennifer expects the price of chewing gum to go up by 10 percent next week. Which of the following is the most likely result of such an expectation?

Jennifer's demand for chewing gum will increase during this week.

When faced with a quantity decision, the economic surplus is always maximized by following the

Rational Rule

The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which of the following is the exception?

The demand for pancakes and the demand for waffles are price elastic.

Which of the following statements regarding the basic economic problem of scarcity is correct?

The problem will exist as long as resources are available in limited amounts.

When drawing a production possibilities frontier, all of the following are usually assumed except one. Which is the exception?

The quantity of resources is rapidly growing.

Complements-in-production

allows a business to produce goods together.

A good that takes up a very large percentage of a consumer's budget will tend to have _____

an elastic demand.

Who benefits from voluntary trade?

buyers and sellers

An expectation of a lower price in the future will:

decrease current demand

The quantity of a good that consumers are willing and able to buy is best explained by _____

demand.

Which of the following is both a shift in supply and a shift in demand?

expectations of future prices

When using the opportunity cost principle, a seller has to

focus on the opportunity cost of producing an item.

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost.

The interdependence principle:

implies that buyers decisions are affected by many factors other than the price of an item.

If people have more time to adjust to a price change, the price elasticity of demand for that good is likely to _____

increase.

If the number of consumers for a good increases, demand will ______

increase.

If Good A and Good B are complements, then a decrease in the price of Good B _____

increases the demand for Good A.

Inferior goods have an income elasticity of demand that is _____

negative.

Economic growth can be depicted on a production possibilities frontier (PPF) as an

outward shift of the PPF.

The assumption that individuals act rationally implies that people _____

people implicitly calculate the costs of and the benefits from an activity to decide if it is worthwhile.

Economists believe that individuals compare the benefits and costs of various options when making a decision and in so doing act ________.

rationally

The reason that the production possibilities frontier is usually a bow-shaped curve instead of a straight line is that

resources are not perfectly adaptable to the production of all goods

In economics, elasticity means _____

responsiveness to price changes.

Sunk costs

should not be considered when making economic decisions

Economics:

studies human behavior when scarcity exists and choices must be made.

Economics is concerned with the trade-offs that emerge because of scarcity. The term "trade-offs" refers to:

the alternatives given up when making choices.

What is the opportunity cost of taking this exam?

the highest valued alternative that you gave up to prepare for and attend the exam

The price elasticity of demand is defined as _____

the percentage change in quantity demanded divided by the percentage change in price.

What does a supply schedule show?

the quantities supplied at various possible prices

According to the law of demand, all other things being equal,

the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

Which of the following does not determine a good's price elasticity of demand?

the slope of the demand curve

As a discipline, economics is best described by which of the following?

the study of how to use scarce resources to satisfy unlimited wants and needs

The cross-price elasticity of demand is used to determine whether _____

two products are substitutes or complements.

If the price of vanilla ice cream increases, everything else remaining constant, it is likely that _____

the demand for chocolate ice cream, a substitute, will increase.

The law of supply implies that _____

price and quantity supplied are positively related.

Which of the following will not shift the supply curve?

a change in price

During the Great Recession of 2007-2009, unemployment shot up and a lot of people lost their jobs. All over the United States, people worried about job security. Which of the following do you think happened as a result of the Great Recession?(i) Consumers ate out less often.(ii) Consumers purchased fewer higher-end vehicles.(iii) Purchases of new housing went down.(iv) Consumers took fewer vacations outside the United States.

(i), (ii), (iii) and (iv) are all correct

_____ is a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium.

Disequilibrium

The cost-benefit principle states that a decision should be pursued only if the

benefits are greater than the costs.

Microeconomics is the branch of economics that focuses on the:

choices and decision-making of individuals and firms.

The most important characteristic of the equilibrium price is that it _____

clears the market, leaving neither a surplus nor a shortage.

A town on the Gulf Coast is battered by a massive hurricane that destroys most of its productive resources. The community's production possibilities frontier (PPF) would show an:

inward shift of the PPF

A demand schedule:

is a table representing the relationship between the price of a good or service and the quantity demanded.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal

In economics, _____ means incremental, additional, or extra.

marginal

Following the rational rule, the economic surplus is maximized when

marginal benefits equal marginal costs.

Equilibrium is the

point at which there is no tendency for change.

Which of the following best defines supply?

the amount of a good that producers are willing and able to sell at each possible price, other things constant

A supply curve typically slopes upward because _____

the opportunity cost of production increases as quantity supplied increases.

The production possibilities frontier (PPF) shows:

the trade-off between the efficient production of two different goods.

What is the opportunity cost of an item?

the value of the best alternative not chosen.

Juan McDonald is willing to pay $600 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction.

will not; only Apple