Unit 1 Questions
An increase in a consumer's income causes her budget constraint to encompass _______ bundles.
more
For two goods that are complements, the cross-price elasticity of demand will be _____________
negative
A demand curve has a _________ slope due to the Law of Demand. The Law of Demand is based off of a consumer's willingness to pay _________ as marginal units are consumed.
negative; less
The relationship that exists between these two variables can be described as _______________
negatively related
equilibrium describes a situation where
no one would benefit from changing his or her behavior
If the income elasticity of demand for a good is positive, the good is ____________
normal
advising the residents of a town to choose a toll road over a freeway extension due to a limited budget and high trucking usage in an example of
normative economics
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in __________________
only the price of a good
optimization describes a situation
people weigh costs and benefits when making a decision
Suppose there is a firm in a perfectly competitive market that has a market equilibrium price of $44. use the graph yo show the demand curve for a firm in a perfectly competitive market
perfectly elastic
machines and equipment that can be used for production
physical capital
making a prediction today about the world's population in twenty years based on current growth trends is an example of
positive
your budget constraint for entertainment illustrates the concept of
tradeoffs
In a perfectly competitive market, an increase in market price shifts the marginal revenue (MR) curve _____ increasing the quantity supplied.
up
For an individual, consumer surplus is calculated as the difference between the ___________ to pay and the price actually paid for a good.
willingness
Which of the following are necessary ingredients to the buyer's problem? (Check all that apply.) A. Consumer's tastes and preferences. Your answer is correct. B. Amount of money the consumer has to spend. Your answer is correct. C. Prices of goods and services. Your answer is correct. D. Employment status of the consumer. E. Consumer's ability to discern product usefulness.
A, B, C
A budget constraint for t-shirts and movie tickets is shown in the graph. If the price of either the t-shirt or the movie ticket decreases, the budget constraint: A. pivots inward and the slope changes. B. pivots outward and the slope changes. C. pivots outward and the slope decreases. D. pivots inward and the slope increases.
B
An argument against evidence-based economics would be: A. it always ends with assumptions. B. it is only an approximation, often based on averages. Your answer is correct. C. it can't be backed up with factual data. D. it is more complicated than real life.
B
which of the following statements would not be considered a positive statement A. U.S. automobile sales increased by 13% in 2012, compared to 2011 B. vending machine outside the classroom needs a better selection of food C. growth rate of college tuition for 2013-2014 was 2.9 percent D. highest annual unemployment rate in the last 10 years was 9.6 percent
B
If the percentage change in quantity demanded for a good is an increase of 25%, when the price of its substitute increases by 30%, the cross-price elasticity is _______
. 83
Anna Jones estimated the price elasticity of demand for new vehicles to be 0.84. If the price of cars increased by 20%, one would expect the quantity of new cars demanded to ______________ by __________
16.8%
Holding all else equal, if the price of a digital camera rises, then we can expect A. a decrease in the quantity demanded of digital cameras. Your answer is correct. B. an increase in the demand for digital cameras. C. an increase in the quantity demanded of digital cameras. D. a decrease in the demand for digital cameras.
A
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market? A. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. Your answer is correct. B. It would create downward pressure on prices, causing firms to exit the market. C. It would make all firms in the market less competitive, since any artificial barrier hurts the market overall. D. There would be no effect on the market, since there are no barriers to entry in perfectly competitive markets.
A
In a perfectly competitive market, a seller cannot choose to raise the price of its good since all sellers in the market produce identical goods, so raising the price would result in losing all its customers. All firms in a perfectly competitive market are said to be __________. A. price takers. B. profitable in the long run. C. price leaders. D. price neutral.
A
In a perfectly competitive market, sellers _________ and buyers _________. A.cannot charge more than the market price; cannot pay less than the market price. Your answer is correct. B. cannot charge more than the market price; are able to pay less than the market price. C. are able to charge more than the market price; are able to pay less than the market price. D. are able to charge more than the market price; cannot pay less than the market price.
A
The mean and the median are closely related concepts. The median is the numerical value separating the higher half of your data from the lower half. You can find the median by arranging all of the observations from lowest value to highest value and picking the middle value (assuming you have an odd number of observations). Although the mean and median are closely related, the difference between the mean and the median is sometimes of interest. Suppose country A has five families. Their incomes are $11 comma 00011,000, $21 comma 00021,000, $29 comma 00029,000, $41 comma 00041,000, and $50 comma 00050,000. Country A's median income is $29,00029,000, and its mean income is $30,40030,400. (Round your responses to the nearest dollar.) Suppose country B also has five families. Their incomes are $11 comma 00011,000, $21 comma 00021,000, $29 comma 00029,000, $41 comma 00041,000, and $149 comma 000149,000. Country B's median income is $2900029000, and its mean income is $5020050200. (Round your responses to the nearest dollar.) Country B has greater income inequality. Suppose you thought income inequality in the United States had increased over time. Based on your answers to this question, would you expect the ratio of the mean income in the United States to the median income has risen or fallen? Explain. A. Risen, because means change more with extreme values. Your answer is correct. B. Fallen, because means change less with standard deviation. C. Risen, because medians increase with variance but means do not. D. Risen, because means increase but medians decrease with income.
A
The supply curve represents ___________. A. the minimum price sellers are willing to accept to sell an extra unit of a good. Your answer is correct. B. the maximum price buyers are willing to pay to buy an extra unit of a good. C. the maximum price sellers are willing to accept to sell an extra unit of a good. D. the minimum price buyers are willing to pay to buy an extra unit of a good.
A
When comparing the equilibriums in the lobster market for August and November, the equilibrium quantity is ______ in November than in August, while the equilibrium price is ______. A. lower; higher, lower, or unchanged. Your answer is correct. B. higher; higher. C. lower; lower. D. lower; unchanged.
A
Which of the following is not one of the five major factors that shifts the demand curve when it changes? A. The price of the good itselfThe price of the good itself. Your answer is correct. B. Expectations about the futureExpectations about the future. C. Tastes and preferencesTastes and preferences. D. The price of substitute goodsThe price of substitute goods.
A
statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is A. a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data B. a positive statement, since most studies have found that global warming does exist and most economists do believe that carbon taxes are an effective way to control emissions C. neither a positive nor a normative statement, since it discusses the broad topic of global warming instead of a specific issue within the country D. a normative statement, since it is an incorrect statement. most economists believed that carbon taxes should be lowered to control emissions
A
Which of the following statements are true? (Check all that apply.) A. A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied. Your answer is correct. B. Equilibrium is attained when prices are allowed to respond to market pressure. Your answer is correct. C. A government price control will always cause the quantity demanded to exceed the quantity supplied. D. A government price control can be used to bring markets into equilibrium.
A & B
Consumer surplus is __________. A. the portion of consumer goods that are purchased in a given time period but not consumed. B. the value or total benefits one receives from a good in excess of the price paid for it. Your answer is correct. C. the per-capita excess supply that exists in a market when the price is too high. D. the income an individual has after his consumption plans are met.
B
Do all consumers in a competitive market enjoy the same amount of consumer surplus? A. Yes, federal law prohibits discrimination. B. No, since considerable variation exists among consumers in terms of tastes and incomes.
B
If the graph on the right represents the market supply and demand curves for pizza, what do we know about the demand curve for an individual pizza shop if the pizza market is in perfect competition? A. The shop's demand curve is steeper than the market demand curve. B. The shop's demand curve is horizontal at exactly $8. Your answer is correct. C. The individual shop's demand curve is the same as the market demand curve. D. The shop's demand curve is to the left of the market demand curve but has the same slope.
B
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________. A. see no change in its number of customers. B. lose all or almost all of its customers. Your answer is correct. C. see a small decrease in its number of customers. D. All of the above are equally likely.
B
The concept of diminishing marginal benefits states that A. the more you consume of a good, the less benefit you receive. B. the more you consume of a good, your willingness to pay for an additional unit declines. Your answer is correct. C. the more you pay for a good, the less benefit you receive. D. the more you pay for a good, the greater the benefit you receive.
B
The production function is: A. the process by which the transformation of inputs to outputs occurs. B. the relationship between the quantity of inputs used and the quantity of outputs produced. C. the purpose of any good, including machines and buildings, used for production. D. a formula for calculating the cost of production.
B
This chapter discussed natural and randomized experiments. Which of the following is not a characteristic of a natural experiment? A. It can yield accurate results. B. It is an inferior approach to a randomized method. Your answer is correct. C. It may utilize historical data for analysis. D. It uses a process, out of the control of the experimenter, to assign subjects to groups in a random way.
B
Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative? A. Opening a bank branch near a university campusOpening a bank branch near a university campus. B. If you use a diamond mine as a tourist attraction instead of using it for miningIf you use a diamond mine as a tourist attraction instead of using it for mining. C. Using a store in the mall to sell clothes instead of shoesUsing a store in the mall to sell clothes instead of shoes. D. Such a scenario, where accounting cost is positive and economic profit is negative, is not possible.
B
Which of the following is not one of the three conditions that characterizes a perfectly competitive market? A. Sellers in the market produce identical goods. B. Firms have pricing power and can set their prices freely. C. Buyers are price takers and cannot influence the price charged. D. There are no barriers to entry or exit in the market.
B
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce until marginal cost is furthest below average total cost. B. Produce until marginal revenue equals marginal cost. C. Produce up to the point where price equals average total cost. D. All of the above.
B
empiricism is a principle in economics that A. aggregates data to create graphs B. uses data to test economic models C. collects data using the scientific method D. gathers data using surveys
B
given this information, which of the following would represent your budget constrain for entertainment A. amount spent on itunes + amount spent at redbox = $1 B. amount spent on itunes + amount spent at redbox = $20 C. amount spent on itunes - amount spent at redbox = $20 D. amount spent on itunes - amount spent at redbox - $1 = $20
B
In which of the following examples, will the demand curve shift to the right? (Check all that apply.) A. Robert's demand for a normal good increases due to a decrease in his income. B. Jason's demand for butter increases due to a decrease in the price of bread. Your answer is correct. C. Ron's demand for an inferior good increases due to a decrease in his income. Your answer is correct. D. Mike's willingness to buy beer increases due to a decrease in its price.
B and C
Is it possible for accounting profit to be positive and economic profit to be negative? A. No, economic profit must always be larger than accounting profit. B. No, economic profit and accounting profit will always end up being the same. C. Yes, this could occur if explicit costs were modest and implicit costs were high. D. Yes, this could occur if implicit costs were modest and explicit costs were high.
C
Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any other month. Given this information, we know that _________ is/are higher in August than in other months. A. only demand. B. only supply. C. both supply and demand. Your answer is correct. D. neither supply nor demand.
C
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question? A. No, since the economic convention is to limit inclusion to the top three variables. B. Yes, the model includes all factors. C. No, the model is a simplified representation of reality. Your answer is correct. D. Yes, the model includes every result from related academic papers and all industry expertise.
C
The demand curve shows ___________. A. the possible bundles of goods that can be purchased with a consumer's income. B. how the quantity demanded responds to changes in consumers' income. C. how the quantity demanded responds to changes in the price of the good. Your answer is correct. D. what goods you like compared to other goods and services.
C
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? A. All variables in the model are set to equal values. B. everything else in the economy is held constant, including the price of the good. C. All variables that can affect the demand for the good are held constant. Your answer is correct. D. All of the above.
C
Which of the following shows the arc elasticity method of calculating the price elasticity of demand?
C
Why does a demand curve with a constant slope not have a constant elasticity? A. Slope is based on percentage change and elasticity is based on absolute change. B. Elasticity depends on more variables than does slope. C. Slope is based on absolute change and elasticity is based on percentage change. Your answer is correct. D. Slope measures responsiveness and elasticity measures change.
C
Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism? A. Even a simplified economic model can provide two standard deviations accuracy. B. Even a simplified economic model can provide 99 percent accuracy. C. Economic models are meant to be approximations that predict what happens in most circumstances. Your answer is correct. D. Economic models are meant to exactly predict each and every outcome by using all variables.
C
comparing a set of feasible alternative and picking the best one is an optimization process called A. likelihood estimation B. normative analysis C. cost-benefit analysis D. statistical inference
C
definition of economics states that it is the study of how A. business make decisions and how those decisions impact other firms, the government, and consumers B. money influences the economy in the short run and long run C. agents choose to allocate scarce resources and the impact of those choices on society D. the government determines policies, businesses set prices, and consumers choose how much to buy
C
A consumer's budget constraintconstraint refers to the collection of all possible bundles that ___________. A. give the consumer the same degree of satisfaction. B. a consumer can purchase with her income with her income. C. a consumer finds suitable for possible purchase. D. exactly exhaust a consumer's entire budget a consumer's entire budget.
D
Consider a good that you do not like at all, perhaps turnips. Given the market price for turnips, what would be your consumer surplus? A. Zero, unless someone actually pays you to eat them. B. Zero, since not liking turnips at all implies an unwillingness to pay anything. C. Some positive, but it will be a very small number. D. Both A and B are possible.
D
In a perfectly competitive market, all of the following are true except: A. Sellers are price-takers. B. Entry into the market is unrestricted. C. The products sold are basically homogeneous. D. The market supply cannot affect the retail price.
D
The lowest price that a seller is willing to receive to sell an extra unit of a good is called willingness to accept, while the highest price that a buyer is willing to pay for an extra unit of a good is called willingness to pay. For a trade to take place, a buyer's willingness to pay must be ____________. A. higher than the seller's willingness to accept. B. equal to the seller's willingness to accept. C. lower than the seller's willingness to accept. D. A and B only. E. All of the above.
D
The price elasticity of demand for a good is likely to be more elastic __________. A. the higher the budget share spent on the good. B. the longer the available time during which consumers can adjust. C. the larger the number of close substitutes for the good. D. all of the above.
D
This occurs because __________. A. there are only a few firms selling identical products, which means they must accept the market price B. perfectly competitive markets are regulated by the government and are therefore not allowed to raise prices C. there are many firms selling slightly different products, causing demand to be horizontal at whatever price the firm chooses D. there are many producers all selling identical goods, meaning no one firm can impact the market price
D
Using your graph, the slope of the industry demand curve demonstrates __________. A. the realistic assumption that the quantity demanded of a good will drop as the price of that good drops. B. the Law of Diminishing Returns holds for this good. C. the fact that the assumptions of perfect competition are not realistic and therefore do not hold for the industry as a whole. D. the realistic assumption that the Law of Demand holds for the good under consideration.
D
What is the difference between accounting profit and economic profit? A. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs. B. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs. C. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs. D. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs.
D
When faced with the option of buying one pair of boots for $6060 or three sets of sandals for $2020 each, Janet chose the pair of boots. The opportunity cost for the boots was: A. a pair of sandals. B. $120 C. $60 D. three pairs of sandals.
D
Which would be the correct sequence of events in the speedboat industry if waterway access was improved and, at the same time, a lighter polymer became available that increased production efficiency? A. Supply would shift right, demand would shift left, equilibrium price would increase, and equilibrium quantity would be indeterminable. B. Supply would shift left, demand would shift right, equilibrium price would decrease, and equilibrium quantity would increase. C. Supply would shift left, demand would shift left, equilibrium price would be indeterminable, and equilibrium quantity would decrease. D. Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase.
D
how do economists distinguish between models that work and those that don't A. they program their models into computers to test via simulation B. they publish their model results in academic journals C. they have their models reviewed by other economists D. they test their models against real-world data
D
to say that economists use the scientific method means that they are using A. a process to develop models that are intended to exactly represent all the details of a system B. a method to develop recommendations for policy makers to run economics C. a method to determine the best course of action for fiscal and monetary policy D. an ongoing process to develop models of the world and then test and evaluate those models
D
which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting their career right away by getting a full-time job A. going to haiti to do missionary work B. spending a uear backpacking across Europe C. starting college right away D. none of these would be considered an opportunity cost E. all of these is a possible opportunity cost
E
when deciding whether to install visible . countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis A. value of the lives lost by drivers who watch the countdown timers and try to make it through a light B. cost in terms of dollars of installing these new timers all over the city C. higher maintenance bill associated with fixing these more complex signals when they break down D. value of the pedestrians' lives saved by having the timers to assist in crossing the street
all of the above
The marginal cost curve cuts the __________ curves at their minimum.
average variable cost and average total cost
When the ATC curve is decreasing, we know that the MC curve is ____________, and when the ATC curve is increasing, we know that MC is ____________
below the ATC curve; above the ATC curve
Combinations of apples and loaves of bread that a consumer could purchase would represent a ___________ while a _______ represents the amount of apples and bread that a consumer could choose using his or her entire budget.
budget set; budget constraint
since you increase your purchase of one item, you must
decrease your purchase of the other item
Everything else the same, as the price of the good increases, quantity demanded ______
decreases
empiricism describes a situation where
economists use data to analyze what is happening in the world
As a firm produces more of a good, the cost of producing each additional unit __________. This implies that the marginal cost of producing a good _________ as you make more of that good.
increases; increases
increase in inputs eventually lead to less additional output
law of diminishing returns
period of time when all of a firm's input can be varied
long run
Willingness to accept is the _____________ price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the _________ cost of production.
lowest; marginal
change in total production associated with using one or more unit of unput
marginal product
process of transforming inputs into outputs
production
The Law of Demand states that as the price of a good increases, ceteris paribus, the ____________________ decreases. This can be shown graphically with _______________ demand curve or numerically in a table using a ________________
quantity demanded; a downward-sloping; demand schedule
Candle makers in Town B do not need a license. Town B, however, has passed a new minimum wage law that increases the minimum wage that candle makers in Town B pay their workers. Assume that the candle market is perfectly competitive. With the higher minimum wage, the short-run average fixed cost curve ___________ and the short-run average variable cost curve _________. The higher minimum wage _______ the short-run profit-maximizing quantity of candles to produce.
remains unchanged; shifts up. decreases
The amount of money the firm brings in from the sale of its outputs is called ____________ while the change in total revenue associated with producing one more unit of output is called ____________
revenue; marginal revenue
Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assume that the candle market is perfectly competitive. With the license, the short-run average fixed cost curve _________ and the short-run average variable cost curve ___________. The license _____________ the short-run profit-maximizing quantity of candles to produce.
shifts up; remains unchanged. does not change
period of time when at least one of a firm's inputs is fixed
short run
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You __________ include this observation in your report because it is _________________ In this case, correlation does not equal causation most likely due to _____________
should not; correlation, not causation; omitted variables
result of workers developing a certain skill in order to increase total productivity
specialization
He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by _______ with _________
testing its predictions; empirical data