Problem Set 4

Which of the following illustrates the law of​ supply? A. An increase in price causes an increase in the quantity​ supplied, and a decrease in price causes a decrease in the quantity supplied. B. An increase in the number of firms in an industry causes a shift of the supply curve. C. A change in price causes a shift of the supply curve. D. All of the above illustrate the law of supply.

A. An increase in price causes an increase in the quantity​ supplied, and a decrease in price causes a decrease in the quantity supplied.

The production possibilities frontier will shift outward A. If resources are used to produce capital goods B.if resources are used to produce consumption goods. C. if technology declines. D. if production occurs outside the production possibilities frontier. E. if resources are not used in production.

A. If resources are used to produce capital goods

What are the implications of this idea for the shape of the production possibilities​ frontier? A. The production possibilities frontier will be bowed outward. B. The production possibilities frontier will have a positive slope. C. The production possibilities frontier will be bowed inward. D. The production possibilities frontier will be a straight line. E. The production possibilities frontier will have a negative slope.

A. The production possibilities frontier will be bowed outward.

Which of the following is the​ textbook's definition of a supply​ schedule? A. a table that shows the relationship between the price of a product and the quantity of the product supplied B. the quantity of a good or service that a firm is willing to supply at a particular price C. a curve that shows the relationship between the price of a product and the quantity of the product demanded D. None of the above.

A. a table that shows the relationship between the price of a product and the quantity of the product supplied

Like many other​ cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many​ carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In​ addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal​, by​ 2014, as consumers increased their demand for new homes in​ Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction​ workers." In the​ future, the price increases of new houses in Denver can be expected to be A. smaller because supply is more elastic over time. B. smaller because supply is less elastic over time. C. larger because supply is less elastic over time. D. larger because supply is more elastic over time.

A. smaller because supply is more elastic over time.

We can show economic​ inefficiency: A. with points inside the production possibilities frontier. B. with points outside the production possibilities frontier. C. with points inside and on the production possibilities frontier. D. with points on and outside the production possibilities frontier. E. with points on the production possibilities frontier.

A. with points inside the production possibilities frontier.

According to a news story about the International Energy​ Agency, the agency forecast that​ "the current slide in​ [oil] prices​ won't [reduce] global​ supply." Would a decline in oil prices ever cause a reduction in the supply of​ oil? A. ​No, a decline in oil prices would reduce the quantity of oil​ supplied, not the supply of oil. B. ​Yes, a decline in oil prices would reduce the supply of​ oil, but not the quantity of oil supplied. C. Yes, a decline in oil prices would reduce both the quantity of oil supplied and the supply of oil. D. No, the supply of oil is fixed.

A. ​No, a decline in oil prices would reduce the quantity of oil​ supplied, not the supply of oil.

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties. Which of the​ following, if​ true, would suggest that the firm is operating on its​ PPF? A. Medical reports earlier this year indicated that higher chocolate consumption increases the risk of heart attack. B. Even though the demand for both liquor and dark chocolates has​ increased, the company can increase the production of only one variety. C. Most domestic consumers prefer the better quality Swiss chocolates imported by the country. D. In an attempt to cut​ costs, the company is planning to fire its unproductive resources. E. The opportunity cost of shifting resources from the production of liquor chocolates to dark chocolates is marginal.

B. Even though the demand for both liquor and dark chocolates has​ increased, the company can increase the production of only one variety.

What does increasing marginal opportunity costs​ mean? A. Production is not occurring on the production possibilities frontier. B. Increasing the production of a good requires larger and larger decreases in the production of another good. C. Increasing the production of a good requires decreases in the production of another good. D. Increasing the production of a good requires smaller and smaller decreases in the production of another good. E. The economy is unable to produce increasing quantities of goods and services.

B. Increasing the production of a good requires larger and larger decreases in the production of another good.

Which of the following is the​ textbook's definition of a supply​ curve? A. a table that shows the relationship between the price of a product and the quantity of the product supplied B. a curve that shows the relationship between the price of a product and the quantity of the product supplied C. the quantity of a good or service that a firm is willing to supply at a particular price D. None of the above.

B. a curve that shows the relationship between the price of a product and the quantity of the product supplied

In late​ 2014, oil prices were falling but some energy traders were convinced that oil prices would begin to rise within a few months. According to a news​ story, these expectations were causing some​ "traders to put oil in storage while they wait for prices to​ rise." Holding some oil in storage rather than selling it would A. decrease the supply of​ oil, shifting it to the right. B. decrease the supply of​ oil, shifting it to the left. C. increase the supply of​ oil, shifting it to the left. D. increase the supply of​ oil, shifting it to the right.

B. decrease the supply of​ oil, shifting it to the left.

Over the past 30​ years, the price of oil has been relatively​ unstable, fluctuating between​ $11.00 and well over​ $100 per barrel. Which of the following potentially contributes to​ oil-price instability? Oil prices are relatively unstable because A. the income elasticity of demand for oil is negative. B. the supply of oil is inelastic. C. OPEC has been successful in controlling the quantity of oil its members supply. D. the market for oil is relatively competitive. E. the demand for oil is elastic

B. the supply of oil is inelastic.

We can show economic​ efficiency: A. with points on and outside the production possibilities frontier. B. with points on the production possibilities frontier. C. with points inside and on the production possibilities frontier. D. with points outside the production possibilities frontier. E. with points inside the production possibilities frontier.

B. with points on the production possibilities frontier.

From the list​ below, select the variable that will cause the supply curve to​ shift: A. Population and demographics B. Consumer income C. The cost of raw materials D. Prices of related goods

C. The cost of raw materials

A production possibilities frontier​ (PPF) is A. a curve that illustrates the demand of two goods for the average consumer. B. a curve showing the generally attainable combinations of two products that may be produced with all planned or​ potential, yet undeveloped technology. C. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. D. a curve that shows the potential productive capabilities of the frontier​ (defined as the area outside of​ cities) of a developing economy.

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

Consider the supply of natural gas. What would make the supply of natural gas more​ elastic? The supply of natural gas would become more elastic if A. more substitutes were available. B. it were more of a luxury. C. the time horizon becomes longer. D.it becomes a larger portion of a​ consumer's budget. E. the definition of the market becomes narrower.

C. the time horizon becomes longer.

In many​ cities, firms that own office buildings can renovate them for use as residential apartments. According to a news​ story, in many cities​ "residential rents are surpassing office​ rents." The response to an increase in residential rents would be A. an increase in the supply of office​ space, shifting it to the right. B. an increase in the supply of office​ space, shifting it to the left. C. a decrease in the supply of office​ space, shifting it to the right. D. a decrease in the supply of office​ space, shifting it to the left.

D. a decrease in the supply of office​ space, shifting it to the left.

​[Related to the Making the​ Connection] An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent​ years, the increase has still amounted to only 5 percent of world production.​ Still, that increase has been​ "enough to help trigger a price​ collapse." A small increase in supply can lead to a large decline in equilibrium price when A. demand is perfectly elastic. B. supply is perfectly elastic. C. demand is relatively elastic. D. demand is relatively inelastic.

D. demand is relatively inelastic.

A production possibilities​ frontier: A. shows the act of buying and selling. B. shows the market for a good or service. C. shows how unlimited wants exceed the limited resources available to fulfill those wants. D. shows how participants in the market are linked. E. shows the maximum attainable combinations of two goods that may be produced with available resources.

E. shows the maximum attainable combinations of two goods that may be produced with available resources.

Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. ​ "There is nothing morally unattractive about​ saying: We need to analyze which way of spending money on health care will produce more benefit and which​ less, and using our money as efficiently as we can. I​ don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible​ costs." It would be more moral to reduce​ pollution, A. taking the cost into account because reducing pollution often reduces economic growth. B. not taking the cost into account because pollution reduction is typically associated with large benefits. C. taking the cost into account because the total cost of reducing pollution is likely enormous. D. not taking the cost into account because pollution is potentially harmful to our health. E. taking the cost into account because money spent on pollution reduction is not available for other worthy activities.

E. taking the cost into account because money spent on pollution reduction is not available for other worthy activities.