Economics Exam 1

Determine the price elasticity of supply if, in response to an increase in price of 25 percent, quantity supplied increases by 20 percent. Is it elastic or inelastic? 0.8 and elastic. 0.8 and inelastic. 1.25 and inelastic. 1.25 and elastic.

0.8 and inelastic.

Determine the price elasticity of demand if, in response to an increase in price of 20 percent, quantity demanded decreases by 25 percent. Is it elastic or inelastic? 0.8 and elastic. 0.8 and inelastic. 1.25 and elastic. 1.25 and inelastic.

1.25 and elastic.

Marie has a weekly budget of $24, which she likes to spend on magazines and pies. If the price of a magazine is $4 each, what is the maximum number of magazines she could buy in a week? If the price of a pie is $12, what is the maximum number of pies she could buy in a week?

6 magazines and 2 pies.

Explain the difference between the movement along the demand curve versus the shift in the demand curve.

A movement along the demand curve is simply a change along the curve depending on the price or quantity, so when the price decreases the quantity demanded increases and vice versa, but external factors can change demand and cause the entire curve to shift left or right

Explain the difference between the movement along the supply curve versus the shift in the supply curve.

A movement in the supply curve happens when there is a change only in the price, but when an overall shift happens it is due to external changes and the overall supply changes causing the graph to move left or right

Define and explain price ceiling and price floor. Give examples of price ceiling and price floor.

A price ceiling is when the government steps in and places a legal limit on how high the price of an item can be. For example, the government could impose a price ceiling on bottled water during a time of crisis to make sure everyone can afford water. An example of a price floor is when the government forces you to make something cost at least a certain amount of money. For example, the government could put a price floor on milk to make sure farmers are earning enough money for selling milk.

To promote consumer spending, the government temporarily reduces sales tax. What is the effect graphically? A reduction in taxes shifts the demand curve to the left. A reduction in taxes shifts the supply curve to the right. A reduction in taxes shifts the supply curve to the left. A reduction in taxes shifts the demand curve to the right.

A reduction in taxes shifts the supply curve to the right.

Define and explain the factors that shift the demand curve.

A shift in the demand curve could be caused by a change in the population, if the population increases then more people will be buying products overall. Society acquiring incomes would also shift the demand curve because it would raise demand all around the curve. Taxes are another example that would work in the same way by lowering society's income overall. An example of a shift in the demand curve is if there is a report from the health department that eating donuts causes health problems, it will shift the entire curve since people won't be buying donuts.

When the market price is above the equilibrium price, how does market forces move the market price to equilibrium price? There will be more sellers than buyers and the surplus goods will start to pile up. all of the above. The only way for sellers to get rid of their excess goods is to lower prices. As price decreases, quantity demanded increases and quantity supplied decreases.

All of the above

What are the three ways that societies can organize themselves economically? A command economy. A mixed economy A market economy. All of the above.

All of the above.

Suppose a new tax is placed on sodas. What is the likely impact on prices of sodas? An increase in taxes shifts the supply curve to the left and causes a decrease in prices. An increase in taxes shifts the supply curve to the left and causes an increase in prices. An increase in taxes shifts the supply curve to the right and causes a decrease in prices. An increase in taxes shifts the supply curve to the right and causes an increase in prices.

An increase in taxes shifts the supply curve to the left and causes an increase in prices.

How does production possibility curve relate to the theory of comparative advantage? here is no relationship between the two. As more and more of a good is produced, resources that have less of a comparative advantage are brought into the production of a good, causing the production possibility curve to be bowed outward. Production possibility curve explains total costs. Theory of comparative advantage explains marginal analysis.

As more and more of a good is produced, resources that have less of a comparative advantage are brought into the production of a good, causing the production possibility curve to be bowed outward.

Why is price directly related to quantity supplied in the law of supply? As price rises, suppliers rearrange their activities to supply more of that good in order to take advantage of the higher price. As price falls, suppliers rearrange their activities to supply more of that good in order to take advantage of the lower price. As price rises, consumers substitute other goods whose price has not risen. As price rises, suppliers rearrange their activities to supply more of a substitute good in order to take advantage of the higher price.

As price rises, suppliers rearrange their activities to supply more of that good in order to take advantage of the higher price.

What's comparative advantage? What's absolute advantage?

Comparative advantage is the ability of someone to do something more effiiciently as compared to something else. Absolute advantage is the ability of someone to do something more efficiently than someone else.

Explain the difference between complements and substitutes

Compliments are goods that are often bought together. Substitutes are goods that you can buy in exchange or substitute for one another. Grape jelly and strawberry jelly are substitutes, and coffee and coffee creamer are complements.

What's constant opportunity cost? What is the shape of the curve of constant opportunity cost?

Constant opportunity cost is when the opportunity cost of your next best alternative stays the same. The shape of the curve of constant opportunity cost is a straight line.

What are the roles of the U.S. government except? Promoting effective and workable competition. Providing a stable set of institutions and rules. Providing public goods. Deciding the economic output.

Deciding the economic output.

Define and explain the factors that shift the supply curve

Factors that cause a shift in the supply curve could be improving technology, which will result in an increased supply of goods, input prices, number of sellers, and other social and natural factors. An example of a shift in the demand curve is if people's income doubles.

In one hour, Corporate Candies can produce 30,000 chocolates or 90,000 gums or any combination in between. What is the trade-off between chocolates and gums? choose all that apply For every chocolate, 1/3 gums can be produced. For every gum, 3 chocolates can be produced. For every chocolate, 3 gums can be produced. For every gum, 1/3 chocolate can be produced.

For every chocolate, 3 gums can be produced. For every gum, 1/3 chocolate can be produced.

Which of the following statements is true? pick all that apply Businesses are primarily sellers in the labor market. Households are typically sellers in the labor market. Businesses are primarily buyers in the goods and services market. Households are primarily buyers in the goods and services market.

Households are typically sellers in the labor market. Households are primarily buyers in the goods and services market.

Understand the circular flow diagram model. What's a factor (labor services) market? What's a goods and services market?

I understand the circular flow diagram model. A factor market is where companies buy factors of production. It's where the buying and selling of land labor and capital occurs. In the goods and services market, households buy what businesses are selling them. (goods and services are exchanged)

How is elasticity related to the revenue from a tax? If demand is unit elastic, then lowering tax rates will increase tax revenue. If demand is inelastic, then raising tax rates will increase tax revenue. If demand is elastic, then raising tax rates will increase tax revenue. If demand is inelastic, then lowering tax rates will increase tax revenue.

If demand is inelastic, then raising tax rates will increase tax revenue.

What does it mean to be perfectly elastic, elastic, unitary elastic, inelastic, and perfectly inelastic?

If something is perfectly elastic, any increase in the price will lead to the demand dropping to zero. If something is perfectly inelastic, the percent change in quantity demanded will be zero no matter what the price changes to. Unitary inelastic means that the percent change in price will lead to an equal percentage change in the amount demanded. Elastic is when depending on a change in price the demand will change. Inelastic is when no matter what happens to the price, the demand will remain the same.

Explain how elasticity affects total revenue.

If the price of something increases, than the quantity demanded for it will decrease and therefore create a decrease in the total revenue of the business selling it. If the price of something decreases, people will buy more and increase the total revenue of the business selling it.

Explain the difference between households, businesses, and government in terms of the circular flow diagram model.

In the circular flow diagram model, households provide land labor and capital to businesses as well as money when they are buying from businesses. Businesses sell their goods and provide their services to households, and government taxes them both to benefit everyone involved.

What's increasing opportunity cost? What is the shape of the curve of increasing opportunity cost?

Increasing opportunity cost is when the opportunity cost of your next best alternative continues to increase as you continue to keep the choice that gives you the most benefits. The shape of the curve is concave.

In the United States, say gasoline costs consumers about $2.50 per gallon. In Italy, say it costs consumers about $6 per gallon. What effect does this price differential likely have on miles driven in the United States compared to Italy? Italians likely drive more miles than Americans. Miles driven cannot be compared between the two countries. Italians likely drive fewer miles than Americans. Italians and Americans likely drive the same amount of miles.

Italians likely drive fewer miles than Americans.

What is the difference between microeconomics and macroeconomics?

Microeconomics focuses of individual actors within an economy. Macroeconomics focuses on the economy as a whole.

Explain the difference between macroeconomics and microeconomics. Be able to give examples.

Microeconomics has to do with individuals acting as producers and consumers of goods and making decisions about businesses, while macroeconomics is about the decisions that countries and governments make as a whole. For example, if a local business decides to hire more workers, this is an example of microeconomics. If the country decides to fight inflation by cutting interest rates, this is an example of macroeconomics.

State whether the cross-price elasticity is likely positive, negative, or zero for pencil and eraser. Negative. They are close complements. Negative. They are close substitutes. Positive. They are close complements. Positive. They are close substitutes.

Negative. They are close complements.

Champagne is: Normal and luxury. Individuals tend to drink more champagne as their income rises and elasticity is likely less than 1. Inferior. Individuals tend to drink significantly less champagne as their income goes up because they will substitute beer for liquor. Normal and luxury. Individuals tend to drink more champagne as their income rises and elasticity is likely greater than 1. Normal and necessity. Individuals tend to drink more champagne as their income rises and elasticity is likely greater than 1.

Normal and luxury. Individuals tend to drink more champagne as their income rises and elasticity is likely greater than 1.

What is opportunity cost? Be able to give examples.

Opportunity cost is the benefit of the next best alternative to your economic decision. For example, if I had a company and I made umbrellas and hangers, and it takes $1 to make 1 umbrella, and $1 to make 4 hangers, the opportunity cost of making one umbrella would be making 4 hangers.

Explain the difference between normative and positive economics. Be able to give examples.

Positive economics are just the plain facts or objective statements. Normative economics are focused on the morality or fairness surrounding economic decisions. An example of positive economics is that healthcare provided by the government creates an increase in public expenditures. An example of normative economics is that minimum wage should be increased to help people of low-income.

State whether the cross-price elasticity is likely positive, negative, or zero for beef and chicken. Negative. They are close complements. Positive. They are close complements. Positive. They are close substitutes. Negative. They are close substitutes.

Positive. They are close substitutes.

Give definitions of elasticities: price elasticity of supply, price elasticity of demand, income elasticity of demand, and cross-price elasticity.

Price elasticity of supply: related to the elasticity of the amount supplied of a good when the price changes Price elasticity of demand: related to the elasticity or behavior of the desire for something when there is a change in price Income elasticity of demand: how the quantity demanded of an item changes when the consumer income changes Cross-price elasticity: refers to how the quantity demanded of something changes when the price of another good changes

Why is price inversely related to quantity demanded in the law of demand? Price is inversely related to quantity demanded because as price falls, consumers substitute other goods whose price has not risen. Price is inversely related to quantity demanded because as price rises, consumers substitute other goods whose price has not risen. Price is directly related to quantity supplied because as price rises, people and firms rearrange their activities to supply more of that good in order to take advantage of the higher price. Price is inversely related to quantity demanded because as price rises, consumers substitute other goods whose price has risen.

Price is inversely related to quantity demanded because as price rises, consumers substitute other goods whose price has not risen.

The law of supply implies: Quantity supplied rises as price falls, other things constant. Quantity supplied falls as price increases, other things constant. Quantity supplied rises as price increases, other things constant. Quantity supplied falls as price decreases, other things constant. Supply increases as price falls. Supply decreases as price rises. Supply increases as price increases. Supply decreases as price decreases.

Quantity supplied rises as price increases, other things constant. Quantity supplied falls as price decreases, other things constant.

Explain the concept of scarcity.

Scarcity is all about having finite resources and our unlimited wants. Because of this, we need to find a way to manage resources in a way that is most efficient and finds the best way to use our resources to meet our wants.

Study the simulation discussion questions. Explain these terms: shortage, surplus, excess supply, excess demand, and equilibrium

Shortage: when there is a lot of demand for something and not enough supply Surplus: When a lot of something, more than the demand, is produced Excess supply: When a lot of something, more than the demand, is produced, it causes the price to fall Excess demand: when the demand for something has exceeded the supply in the market Equilibrium: a state where supply and demand are balanced

What are the assumptions in economics?

The assumptions in economics are that people always behave rationally to maximize their benefits, people always compare the costs and benefits of something and then make a decision, people make independent choices, and that all their choices have costs.

The price of airline tickets rise during the summer months because more people travel. Graphically, what happens to the demand curve? The demand for air travel shifts to the left, increasing price and quantity supplied. The quantity demanded of air travel demanded decreases, increasing price and quantity supplied. The quantity demanded of air travel demanded increases, increasing price and quantity supplied. The demand for air travel shifts to the right, increasing price and quantity supplied.

The demand for air travel shifts to the right, increasing price and quantity supplied.

Define and explain the law of demand.

The law of demand is the idea that the quantity demanded of something rises when its price falls, and also the quantity demanded of something decreases when the price is increased. So if something is cheaper people will buy more. Overall, there is a direct relationship between the route and quantity demanded of something, all else equal.

Define and explain the law of supply

The law of supply says that the more a price of something increases, the more of it suppliers will make. Overall there is a direct relationship between price and quantity supplied with all else equal.

Explain why you made the choice to go to Econ 121 lecture in terms of marginal benefits and marginal costs. The marginal cost of not going to the lecture (failing the class) was less than the marginal benefit of not going (the three hours of leisure time). The marginal benefit of going to the lecture (passing the class) was less than the marginal cost of going (missing three hours of leisure time). The marginal benefit of going to the lecture (passing the class) was greater than the marginal cost of going (missing three hours of leisure time). The marginal cost of not going to the lecture (failing the class) was greater than the marginal benefit of not going (the three hours of leisure time).

The marginal benefit of going to the lecture (passing the class) was greater than the marginal cost of going (missing three hours of leisure time).

You rent a car for $29.95. The first 150 miles are free, but each mile thereafter costs 15 cents. You plan to drive it 200 miles. What is the marginal cost of driving the car beyond the first 150 free miles? The marginal cost is $29.95. The marginal cost is the gas money. The marginal cost is $7.50 plus the cost of gas cost. The marginal cost is 15 cents.

The marginal cost is $7.50 plus the cost of gas cost.

Which of the following events can shift the demand curve? The population grows. Price of the good changes. The supply curve shifts. A movement along the demand curve.

The population grows.

What is production probabilities frontier/curve? What are the economic concepts does it illustrate?

The production probabilities frontier is a curve that calculates opportunity cost. It shows the relationship between the amount of goods that can be produced from two choices if they are both dependent on the same amount of limited resources.

If U.S. and Mexico have no comparative advantage in either of guns and butter, what are the gains from trade? There are no gains from trade because there is no comparative advantage in either gun or butter for each country. Both of the countries always gain from trade. The country that has the greater productive capacity has a greater gain from trade. The country that has the greater consumer need has the larger gain from trade.

There are no gains from trade because there is no comparative advantage in either gun or butter for each country.

What are the two effects to explain the law of demand?

Two effects to explain the law of demand are income effect and substitution effect. Income effect means the less amount of money a household makes, they'll have less money to spend on something. The substitution effect is that the more expensive something is, a household will buy something as an alternative or substitute for it that is cheaper instead,

What are the characteristics of capitalism?

Under capitalism, the means of production are owned by individuals who are called capitalists. It is a free market economy where anyone can participate. Under capitalism, all companies are driven by the motivation of making profit. It is the government's responsible to make sure it is a fair playing field for everyone and making sure to have laws that protect workers.

What are the characteristics of socialism?

Under socialism, the means of production and all other capital is owned by the government. All the wealth generated is distributed amongst everyone, and the government provides it for them. The government also decides how the wealth is distributed amongst everyone.

Explain the difference between normal and inferior goods.

When consumer income increases, and the demand for a good increases, that good is normal. When a good is inferior, as consumer income increases, the demand for that good will decrease. For example ramen noodles and inferior goods and steak is a normal good.

a severe drought has caused water shortage in California affecting farmers growing methods. the impact on the market for almonds will be a leftward shift of a. the supply curve b. the demand curve as consumers try to economize because of the shortage c. both the supply and demand curve d. the supply curve and a rightward shift of the demand curve resulting in a higher equilibrium price

a

Examples of social forces and political forces that prevent an economic force from becoming a market force are? Buying and selling human organs. Buying babies. Drug use. All of the above.

all of the above

For the three questions in the economy: what to produce, who to produce, and for whom to produce, which of the following statement is true? Businesses decide what to produce based on what they think will sell and earn profit for the business. Those who are willing to pay for the goods and services at the market-determined prices will get them. All of the above. Businesses decide how to produce guided by what they believe will earn them the largest profit.

all of the above

The three major forms of business in the U.S. are: partnership. all of the above. sole proprietorship. corporation.

all of the above

What are the three main goals of macroeconomics? low unemployment rate high inflation rate high economic growth rate

all of the above

When the market price is below the equilibrium price, how does market forces move the market price to equilibrium price? There will be more buyers than sellers and the increase in shortage of goods. As price increases, quantity demanded decreases and quantity supplied increases. The only way to eliminate shortage is the price to increase. all of the above.

all of the above

Which of the following statement is true? As taxes rise, demand falls. As the taste for a product rises, demand increases. As income rises, demand for a normal good increases. All of the above.

all of the above

Which of the following statements is true? As the price that producers expect to sell their products for increases, supply decreases. All of the above. As the amount of taxes that producers pay increases, supply decreases. As the price of inputs rises, supply decreases.

all of the above

according to the law of supply, the quantity of an item supplied will rise as a result of

an increase in the price

When income increases and the demand for a good decreases, the good is considered: an expensive good. a complement good. an inferior good. a normal good.

an inferior good

The theory of rational behavior: choose all that apply assumes that people will always attempt to act in their own self-interest. is an assumption that economists make to have a useful model for how decisions are made. implies that people will always know exactly what they are buying. implies that people will always know exactly what they are selling.

assumes that people will always attempt to act in their own self-interest. is an assumption that economists make to have a useful model for how decisions are made.

california farmers face unprecedented water drought. at the same time, many studies have shown that eating almonds is beneficial to heart health. what's the impact of equilibrium quantity and price in the almond market? a. quantity is ambiguous and the price decreases B. Quantity is ambiguous and the price increases. C. Quantity increases and the price is ambiguous. D. Quantity decreases and the price is ambiguous.

b

What are examples of economic agents in the circular flow model?

businesses, households, governments

According to the law of demand, the quantity of an item demanded will rise as a result of a. an increase in the number of firms producing the item b. decreases in the prices of inputs used to produce the item c. an increase in the price of an item d. a decrease in the price of an item

d

stricter environmental regulations on petroleum and increased demand for energy have caused an increase in the demand for relatively clean natural gas. In the last several years, improved extraction technologies and new discoveries have increased the availability of natural gas. What has been the net effect on the equilibrium price and quantity for natural gas. a. quantity sold and price both fell with certainty b. quantity sold fell and the effect on price is ambiguous c. quantity sold and price both rose with certainty d. quantity sold rose while the effect on price is ambiguous

d

according to the law of supply, a decrease in the price of gasoline will

decrease the quantity supplied of gasoline, other things constant

The slope of a demand curve represents how much demand will respond to a change in price. The flatter the slope of the demand curve, the ______the response in the change in quantity demanded. less. greater. none of the above. same.

greater

An economy is operating inside its production possibilities curve: implies that the economy has full employment. implies that the economy is operating inefficiently. implies that the economy is operating at full capacity. implies that the economy is operating at more than full capacity.

implies that the economy is operating inefficiently.

In a market economy, what determines who get the goods and services? Individuals. The government. Businesses. Price.

price

The law of demand implies: demand increases as price rises. Demand decreases as price falls. quantity demanded rises as price falls, other things constant. Quantity demanded falls as price rises, other things constant. demand increases as price falls. Demand decreases as price rises. quantity demanded rises as price rises, other things constant. Quantity demanded falls as price falls, other things constant.

quantity demanded rises as price falls, other things constant. Quantity demanded falls as price rises, other things constant.

A demand curve shows the graphical representation between price and: quantity supplied. quantity produced. quantity demanded. quantity.

quantity demanded.

A shift in the supply curve causes a change in: quantity produced. quantity demanded. quantity. quantity supplied.

quantity demanded.

A supply curve shows the graphical representation between price and: quantity demanded. quantity supplied. quantity produced. quantity.

quantity supplied.

The insurance paid on your car is considered to be All of the above. marginal benefit. marginal cost. sunk cost.

sunk cost

The agricultural extension agent told the farmer that one more crop-dusting will likely add a ton of additional wheat to the harvest. The rational farmer then calculated the selling price of a ton of wheat, since he would decide to crop-dust again if and only if: the total costs from all crop-dustings is greater than the total cost of all crop-dustings. the marginal benefit is greater than the marginal cost of an additional crop-dusting. the total benefits from all crop-dustings is greater than the total cost of all crop-dustings. the marginal cost is greater than the marginal benefit of an additional crop-dusting.

the marginal benefit is greater than the marginal cost of an additional crop-dusting.

A shift in the supply curve implies: there is a change in the quantity supplied. there is a change in supply shift factors. there is a movement from one point to another along the supply curve. there is a change in the price of the good supplied.

there is a change in supply shift factors.

When quantity demanded increases in response to a change in price implies: there is a movement from one point to another along the demand curve. the demand curve shifts to the right. the demand curve shifts to the left. the demand curve doesn't shift.

there is a movement from one point to another along the demand curve.

real world experience shows that when good weather conditions increase crop yields, the price of agricultural products will fall

true

Scarcity occurs because of:

unlimited wants. limited resources.