Test 1-True/False

When the price of knee braces increased by 25%, the Brace Yourself Company increased their quantity supplied of knee braces per week by 75%. BYC's price elasticity of supply of knee braces is .33.

False (75/25=3)

A movement along the supply curve is called a change in supply while a shift of the curve is called a change in quantity supplied.

False (A movement along the supply curve is called a change in quantity suppled while a shift of the curve is called a change in supply.)

Supply is said to be inelastic if the quantity supplied respond substantially to changes in the price, and elastic if the quantity supplied responses only slightly to price.

False (Supply is said to be *elastic if the quantity supplied respond substantially to changes in the price, and *inelastic if the quantity supplied responses only slightly to price.

Supply tends to be more elastic in the short run and more inelastic in the long run.

False (Supply tends to be more inelastic in the short run and more elastic in the long run.)

Demand is inelastic if the elasticity is greater than 1.

False (demand is elastic if e>1)

If the price elasticity of demand is equal to 0, the demand is unit elastic.

False (if it is equal to 1 it is unit elastic, if it is equal to 0 it is perfectly inelastic)

A reduction in an input price will call a change in quantity supplied, but not a change in supply.

False (it will change supply because a shift will occur from a reduction in an INPUT price)

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

False (said to be elastic)

The law of supply states that other things equal, when the price of a good rises, the quantity supplied of the good falls.

False (the QS rises; positive relationship)

The flatter the demand curve that passes through a given point, the more inelastic the demand.

False (the more elastic)

If a company making frozen orange juice expects the price of their product to be higher next month, they will supply more to the market this month.

False (they will supply less b/c they know they can make more money later)

The demand for gasoline will respond more to a change in price over a period of I've weeks than over a period of five years.

False (will respond less) (the longer time period the more elastic)

Tuition is the single-largest cost of attending college for most students.

False, actually it is the lost earnings that you could have made from going straight into the workforce

In a perfectly competitive market, buyers and sellers are price setters.

False, they are price takers b/c they must accept whatever the market price gives them

Since taxes affect only the price paid by the buyer, the cannot have an adverse impact on the allocation of society's resources.

False, they can

Economics is the study of how fairly goods and services are distributed within society.

False: It is the study of how society manages scarce resources

A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests.

False; It can because the individual hand guides your self interests

Surpluses drive price up while shortages drive price down.

False; Surpluses drive price down while shortages drive price up.

With careful planning, we can usually get something we like without having to give up something else that we like.

False; We are always facing tradeoffs

If the demand for a good falls when income falls, the good is called an inferior good.

False; a normal good (not inferior bc think generic paper towel people will buy more if their income falls)

It is not possible for demand and supply to shift at the same time.

False; it is possible

The market demand is the average of all of the individual demands for a particular good or service.

False; it is the horizontal sum

The law of demand states that the quantity demanded of a product is positively related to price.

False; negatively (as price goes up QD goes down)

If there is an improvement in the technology of producing a product, the supply curve for that product will shift to the left.

False; right (increase in supply)

A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.

False; they want the benefits to exceed costs

The behavior of buyers and sellers drives markets toward equilibrium.

True

The computer software industry is an example of monopolistic competition.

True

The cost of an action is measured in terms of foregone opportunities.

True

The government can potentially improve market outcomes if market inequalities or market failure exists.

True

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

True

Whenever a determinant of demand other than price changes, the demand curve shifts.

True

The price of calculators increases by 15% and the quantity demanded per week falls by 45%. The price elasticity of demand is 3.

True (45/15=3)

The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular price.

True (WILLING AND ABLE)

The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular price.

True (WILLING AND ABLE)

When an increase in the price of one good lowers the demand for another good, the two goods are called complements.

True (baseball and baseball bat)

Price, which is determined by all buyers and sellers as they interact in the marketplace, allocates the economy's scarce resources.

True (language of trade)

The demand for Rice Krispies is more elastic than the demand for cereal.

True (narrow is more elastic than broad)

A marginal change is a small incremental adjustment to an existing plan of action.

True (people make adjustments one step at a time)

In a free market, the price of any good adjusts until quantity demand equals quantity supplied.

True (reach equilibrium)

An increase in the price of pizza will shift the demand curve for pizza to the left.

false (no shift is occurring; quantity demand just goes down)

If a good or service has only one seller, it is called an oligopoly.

false, a monopoly

Baseballs and baseball bats are substitute goods.

false; complements

A local cable TV company might be an monopolist.

True

A market is a group of buyers and sellers of a particular product.

True

A reduction in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.

True

A shortage will occur at any price below equilibrium price and a surplus will occur at any price about equilibrium price.

True

A supply curve slopes upward because all else equal, a higher price means a greater quantity supplied.

True

Equity refers to how the pie is divided and efficiency refers to the size of the economic pie.

True

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

True

If a supply curve is horizontal it is said to be perfectly elastic and the price elasticity of supply approaches infinity.

True

If demand is perfectly inelastic, the demand curve is vertical and elasticity is equal to 0.

True

Market failure refers to a situation in which the market does not allocate resources efficiently.

True

Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands.

True

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

True

Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.

True

Productivity is the primary determinant of a country's living standards.

True

Quantity demanded is equal to quantity supplied, at equilibrium price.

True

Scarcity means that there is less of a good or resource available than people wish to have.

True