Economics 211 Exam 1

willingness to pay is the

highest value that a consumer believes a good or service is worth

price gouging

illegal

outside ppf

impossible

A basic belief of economics is that

in general, people respond to economic incentives

progressive tax

income rises, income is taxed at a higher percentage

If Thelma's willingness to sell her homemade fudge is $4, then at which of the following prices would Thelma sell her fudge?

$4.01

which of the following prices could represent sally's willingness to pay for a pair of shoes if she bought them for $45

$55.00

if the price increases by 100% and the quantity decreases by 50%, then the elasticity of demand is

-0.5

when the price of a good decreases from $10 to $8, the quantity supplied of the good decreases from 80 units to 65 units. the price elasticity of supply is

0.93

gov intervention needed to increase efficiency; gov causes inefficiency

2 types of gov intervention

What? consumers determine; producers willing to sell Who? distribution How to combine inputs to produce?

3 questions society must answer

Heather has one employee in her sweater shop who can sew six sweaters a day. When she hires a second person, the two employees can make ten sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.

4

land, labor, capital, entrepreneurship

4 factors of production

price elasticity of demand and supply, cross price elasticity, and income elasticity

4 main types of elasticity

Which is not considered a basic economic question? A. How will the system accommodate change? B. What goods and services will be produced? C. Who will receive the goods and services? D. How will these goods and services be produced?

A

capital includes all of these except: A. dollar bills in a bank vault B. copy machines in an insurance company C. tractor loaders of a construction firm D. drilling equipment at a tool-and-die company

A

price ceiling

A legal maximum on the price at which a good can be sold

Elasticity

A measure of how much one economic variable responds to changes in another economic variable.

model

A simplified version of reality used to analyze real world situations and test hypothesis

normative

Analysis concerned with what ought to be

which statement does NOT deal with microeconomics? A. profits for some manufacturing firms fell in 2009 B. in 2009, the unemployment rate in the US rose to nearly 10% C. salaries of top executives fell in 2009 D. competitive markets promote efficiency

B

which of the following will shift the demand curve for a good? A. a change in technology used to produce the good B. an increase in the price of the good C. a decrease in the price of a complementary good D. a decrease in the price of the good

C

which of the following would cause a decrease in the supply of milk? A. an increase in the price of cookies (assuming they are complements) B. decrease in price of milk C. increase in the price of a product that producers sell instead of milk D. increase in the # of firms that produce milk

C

which question is not an example involving marginal analysis? A. should a university offer another section of a class? B. should a restaurant stay open another hour? C. should k-mart rebrand all its stores to using the sears name? D. should Boeing hire another assembly line?

C

which statement is true of microeconomics? A. the unemployment rate fell by 2% B. all businesses in the United States experienced a decrease in revenues of 5% due to the recession C. about 15% of teachers were laid off last week D. GDP increased by 6% last quarter

C

curved ppf

Changing slope so changing opportunity cost

which example represents incentives for decisions? A. tax deductions for individual retirement accounts B. investment tax credits for businesses C. tax deductions for education saving accounts D. All of these

D

complements

Eab<0

substitutes

Eab>0

inferior goods

Ey<0

luxury good

Ey>1

Consider the following statements. Which, if any, are positive statements? I. Main Street needs more coffee shops II. A new parking garage on campus will reduce parking congestion III. Last winter, the state should have spent more money on snow removal

II only

PPF

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

if, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as

a decrease in quantity demanded

trade off

a sacrifice that must be made to get a certain product or experience

Marginal analysis would put an emphasis on

additional costs and benefits

Ceteris Paribus

all other things held constant

planned economy

an economic system directed by government agencies

capitalist/market economy

an economy in which buyers and sellers interact to determine which goods and services to produce, how much of them to produce, and how to distribute them

inferior income

decrease, the demand for goods decrease (wouldn't need to buy with more money)

if a store sells a good with a highly elastic demand, then a decrease in the price would lead to:

an increase in total revenue

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

an inferior good

regressive tax

becomes a smaller percentage as income rises

incentive

can steer people toward making certain choices

A market economy is also known as a __ economy, and decisions are made by __

capitalist; private individuals

suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. this price floor:

causes a surplus of milk in the market

elastic demand

coefficients are greater than one

inelastic demand

coefficients are less than one

positive

concerned with what is

linear ppf

constant opportunity cost

ranchers can either raise cattle or sheep on their land. which would cause the supply to increase?

decrease in the price of cattle

tax burdens are higher on consumers when

demand is inelastic and supply is elastic

rational behavior

doesn't always hold because some look at low prices and think low quality

unitary elastic

elastic coefficient = 1

normal good

elasticity is positive but <1

rent control

example of price ceiling

minimum wage

example of price floor

Scarcity

faced by all individuals and societies

equity

fairness of economic benefits

flat tax

fixed percentage regardless of income

price floor

gov sets minimum price for a good

when market failure occurs, it often creates an incentive for

government intervention into the market

The more responsive buyers are to a change in price, the:

greater the price elasticity of demand

normal income

increase leads to a shift to the right (more money, more willingness)

if the apple MacBook and dell XPS are considered substitutes, then, other things equal, an increase in the price of the MacBook will

increase the demand for the XPS

inside ppf

inefficient

Suppose your income falls from $35,000 to $33,000 and that your quantity demanded of a good that you buy increases in response from 40 to 55. The good is said to be a(n):

inferior good

lack of competition asymmetric info externalities public goods

market failures

when quantity demanded equals quantity supplied then the

market is in equilibrium

financial capital

money

which of these is NOT an economic factor of production?

money

a country operating outside of the production possibilities frontier is

operating impossibly because a country cannot operate outside the production possibilities frontier

tax policy is partly based on the notion that

people respond to financial incentives

increase quantity demanded; decrease quantity supplied; creates market shortage

price ceiling

equilibrium in a market

quantity demanded = quantity supplied

an effective price ceiling leads to

quantity demanded exceeding quantity supplied

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

when an economy is operating efficiently, the production of one more unit of a good will result in some loss of production of another good because

resources are limited and efficiency implies that all resources are already in use

when quantity supplied exceeds quantity demanded, a __ occurs and prices are pushed __ toward equilibrium

surplus; down

production

taking inputs and creating things

A common definition of economics is that it is the study of

the allocation of scarce resources to satisfy competing wants

the basic idea of opportunity cost is that

the decision to use resources in one activity means that the resources cannot be used elsewhere

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

the demand curve shifts to the left

physical capital

the equipment and structures used to produce goods and services

when economists refer to a market demand curve, they mean that it represents

the horizontal summation of individual demand curves

producer surplus is the difference between the

the market price and the minimum price a seller is willing to accept

the opportunity cost of buying a ticket to a major league game and then going is

the next best alternative that could have been undertaken

the price elasticity of demand measures the

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

Which concept would be addressed by microeconomics?

the price of college tuition that an individual student pays

in a market-based-economy, scarce resources are allocated by

the price system

At any price below the equilibrium price:

the quantity demanded exceeds the quantity supplied in the market.

if a price ceiling is set above the equilibrium price in the market, producer surplus will be

the same as it would be without the price ceiling

When markets are efficient

the sum of consumer and producer surplus is maximized

largest influence on elasticity of supply

time

opportunity costs exist because

using resources for one activity means that their use elsewhere must be given up.

Efficiency

using resources in such a way as to maximize the production of goods and services

consider the demand for olive oil. what would happen to the demand of olive oil if a study confirming its beneficial health effects is published at the same time that an investigative report finds that much of the olive oil imported into the country is actually sunflower oil that has been dyed?

we would expect demand to shift in each direction but the final position will depend on which event has the bigger impact on demand

tax incidence is defined as

who bears the burden of a federal or local tax

producer surplus

willingness to accept is below market price

consumer surplus

willingness to pay is above market price