ECO 165 Olsen (MSU) Exam 1
What would change the demand when referring to income?
1. Normal goods: y increases = Demand increases y decreases = demand decreases 2. Inferior goods Y increases = demand decreases Y decreases = demand increases
Which of the following will not increase the demand for cars: A. A decrease in the price of cars. B. A decrease in the price of gasoline (a complimentary good). C. An increase in the price of city buses (a substitute good). D. An expectation that prices of cars will increase in the future. E. All of the above will increase the demand for cars.
A. A decrease in the price of cars.
Suppose that we observe a decrease in the price of gas. What will happen in the market for cars? A. Demand will increase B. Demand will decreease C. Supply will increase D. Supply will decrease
A. Demand will increase
Which of the following would not cause the supply of passenger cars to increase? A. the price of cars increases B. the price of pickup trucks decreases C. A new union contract in the car industry reduces labor costs for manufacturers D. Several new car manufacturers begin producing cars. E. All of the above cause the supply of cars to increase.
A. the price of cars increases
Which of the following statements could not be tested by economic analysis? A. Higher tax rates cause tax revenues to fall. B. Only cigarette companies are harmed by higher cigarette taxes. C. Gambling should be legalized to raise tax revenue. D. Outlawing bars will reduce drunk driving.
C. Gambling should be legalized to raise tax revenue.
The law of increasing costs states that as the production of one good (guns, for example) is increased, the cost of that good must inevitably increase. Why is this the case? A. resources become more costly as production increases. B. Some resources are better able to produce guns then other resources. C. labor is used more intensively at lower production levels than at production levels. D. Demand for the good decreases as the amount produced increases.
B. Some resources are better able to produce guns then other resources.
In economic theory, the behavioral assumptions of consistent behavior and maximization of satisfaction or profit are applied to: A. households, firms, and governments. B. households and firms. C. governments only. D. households only. E. firms only.
B. households and firms.
Inefficiency: A. implies the existence of economic inequity. B. occurs whenever it is possible to make someone better off without making someone else suffer. C. exists whenever maximum output is achieved given the resources available. D. whenever present, implies that more total output could always be produced given an economy's resources.
B. occurs whenever it is possible to make someone better off without making someone else suffer.
All of the following statements are positive except: A. "My administration will balance the federal budget by 1983." (Ronald Reagan, campaign promise, 1980.) B. "It is an economic contradiction for airline passengers to pay higher fares to fly shorter distances than longer ones." (Hobart Rowen, Washington Post, 1985.) C. "inflation makes everyone worse off by lowering the purchasing power of people's income." D. "rent controls are preferable to income grants for assisting low-income families." E. all of the above are positive statements.
D. "rent controls are preferable to income grants for assisting low-income families."
All of the following basic economic questions deal with microeconomics except: A. How is the supply of goods allocated among the members of the society? B. What goods and services are being produced and in what quantities? C. By what methods are goods and services being produced? D. Is the economy's capacity to produce goods growing over time? E. all of the above
D. Is the economy's capacity to produce goods growing over time?
Explain market supply
Just as with market demand, market supply represents the behavior of all the firms in the market. Hence, market supply measures how much all firms in the market are willing and able to supply (quantity supplied) given the price, ceteris paribus.
What are the four factors of production and their returns?
Labor = wages Land = rent Capital = interest Entrepreneurship = profit
What is the substitution effect?
When the price of a good falls, ceteris paribus, individuals tend to buy more of that good because the price has become less expensive relative to that good's substitutes. A good is a substitute in consumption for another good if the goods fulfill the same basic purpose. Hence, when the price of apples falls, then people tend to buy more apples and fewer of apples' substitutes, such as oranges and bananas. The reverse is true as well for a price increase of a good.
Stock variable
measured at a point of time
Flow variable
measured over a period of time
Define Demand.
shows the quantity (QD) of a good that a person(s) are willing & able to buy, ecteris paribus, given its price.
Describe Households.
• Consumers of goods • Buyers of goods • Interested in money and satisfaction • Goal = max satisfaction • Consistent in Decisions
Describe intervening when a market fails like the government would do.
• Intervene when markets fail o Monopoly power (talk more about later on) o Externalities ♣ These occur when someone external is affected by the exchange (3rd party) • Benefit (Positive Externality) • Hurt (Negative Externality) ex. Pollution o Public goods ♣ Non-rivaled ♣ Non-excluded ♣ 2 Questions about the good • Rivalry o Consumption by ____ preludes consumption by another o Rivalrous goods - If I eat banana, you cannot eat it o Non-rivalrous goods- Online goods • Exclusion: o Easy to exclude non-payers
Describe Firms.
• Producers of goods • Buyers of resources • Sellers of goods • Goal = make profits • Consistent in Decisions
Which of the following is the best definition of opportunity costs? A. the amount of one good that must be given up in order to produce one more unit of another good. B. the amount of money that must be paid in order to purchase one more unit of a good. C. the amount of an input that must be used in order to produce one more unit of a good. D. the price of a good that must be charged in order for a merchant to sell one more unit. E. none of the above.
A. the amount of one good that must be given up in order to produce one more unit of another good.
Which of the following changes will have no effect on the production possibility boundary? A. the development of a new and superior fertilizer. B. an increase in unemployment. C. the development of a more productive method of steel production. D. growth in the labor force. E. all of the above affect the production possibility boundary.
B. an increase in unemployment.
Consider the market for labor where the wage rate is the price of labor. Assume initially that the federal minimum wage equals the market equilibrium wage rate. Now assume the government increases its minimum wage to $1 above the market equilibrium wage rate. One would not expect: A. unemployment rates for teenagers and other unskilled workers to rise. B. an increase in the quantity of workers supplied. C. a decrease in the quantity of workers demanded. D. incomes from wages to rise for all working-class families.
D. incomes from wages to rise for all working-class families.
The scientific method includes all of the following except: A. initial observations of the real world. B. Testing C. Building models D. Making assumptions E. All of the above are included in the scientific method.
E. All of the above are included in the scientific method.
An increase in the price of cheese, all else equal, is likely to have all of the following effects except a: A. decrease in the quantity demanded of cheese. B. decrease in the supply of pizza. C. increase in demand for peanut butter (a substitute good). D. decrease in the demand for apple pie (a complimentary good). E. all of the above will occur.
E. all of the above will occur.
Economic Efficiency & the two kinds.
Economic efficiency: Maximizing the welfare of society 1. Technologically Efficiency (HOW? max products produced with fewest resources) 2. Allocative Efficiency (What & Who? mutually beneficial exchanges. This only occurs when ALL mutually beneficial exchanges have taken place)
What would change the demand when referring to the expectations about a future market?
Example: 9/11 gas prices in Springy Expected price increase in future = demand now increases Expected price decrease in future = demand now decreases
Explain the concepts associated with John Wayne and Henry Ford. Include which individuals concept are better for society?
Henry Ford: 1.Became rich by producing cars cheaper than anyone else through an assembly line. 2.Specialization of labor gives us an increase in productivity 3.Must rely on others to do their job correctly as well John Wayne: 1.Rugged individualist 2.Consume only what you produce yourself. 3.Don't have to rely on anyone else 4.But also have lower productivity Society is better off using specialization.
What would change the demand when referring to tastes and preferences?
If T&P increase = demand increases If T&P decreases = demand decreases
What is the definition of the law of increasing (opportunity) costs?
In economics, the law of increasing costs is a principle that states that once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well.
Positive Vs Normative Statements
Positive Statements (ACTUALLY how the world is... can be tested) Normative Statements (SHOULD be how the world is... opinions based & cannot be tested)
What would change the demand when referring to substitutes?
Price for good increases = Demand for good increases Price for good decreases = demand for good decreases
What would change the demand when referring to compliments?
Price increases = demand decreases Price decreases = demand increases
Describe the law of demand.
Price increases, QD decreases (downward sloping) Price decreases, QD increases
Scarce vs free?
Scarce: quantity demanded > quantity supplied, when the price = zero. Free: quantity demanded < or = quantity supplied, when the price = zero.
What does the PP model show and not show?
Scarcity Technological Efficiency and Inefficiency Full Employment and Unemployment of Resources Opportunity Cost The Law of Increasing Opportunity Costs The Law of Diminishing Returns How Choices Made Today Affect Future Production Possibilities Does NOT show: the best or most efficient choices
Define Supply.
Supply: shows the quantity (QS) a firm(s) is willing and able to provide, etcetera paribus, given the price of the good.
What is ecteris paribus?
all things considered equal
What would change the demand when referring to # of buyers in a market?
# increases = demand increases # decreases = demand decreases
What are the 5 systems of exchange?
1. Force: The simplest system of exchange is one where ownership of resources and outputs are determined by force. That is, by the person or group with the most ability to enforce its ownership through such measures as fear, intimidation and violence. This system, although often illegal, remains widely used in the world today both with individuals and small groups but also between nations. 2. Tradition (Feudal societies): In this case, just as with European feudal societies of the middle ages, what was produced and who received it was determined by the class in which one was born. 3. Planned Economies: During the 20th century some societies, usually communist countries, turned to central planning usually by a strong, central government to control exchange. In such economies, the central body made extensive and detailed plans for the type of production that would occur, sometimes taking such plans out for a number of years. The most extensive example of a planned economy was the Soviet Union, which came into being during the early part of the century and eventually fell in 1991. 4. Market Forces: a system that allows individuals to decide themselves what to produce and consume based upon their own preferences, abilities and resources. As discussed below, a "market" refers to a place where exchange occurs in such a system. This may, as markets did originally, refer to a geographic location where exchange occurs but has come more commonly, with increased communication technology, to refer to the process of exchange itself. A system of market forces is sometimes referred to as a "free market economy." 5. Mixed Economies: Mixed economies refer to some combination of the two previous types of systems: (1) planned economies and (2) market forces. Americans tend to think of the U.S. system as one where individuals are free to make market decisions - a free market system. However, even a brief investigation reveals that the free market is not always free in the U.S. The government both forbids some market activities (e.g., some drug use, markets in living bodies, etc.) as well as regulating a large number of other market activities (e.g., other types of drug use, interstate commerce, health care, etc.) In other instances, the government itself provides a large number of goods and services (e.g., information - the government is the largest provider of information, education, roads, etc.) In all of these examples, the government is acting as the central planning agency in a planned economy.
What are the four main tasks of the government?
1. Protect private property 2. set up a legal system 3. intervene when markets fail 4. normative decision making
What are the influences on demand?
1. Tastes and Preferences 2. income 3. Substitutes 4. Compliments 5. # of buyers in a market 6. Expectations about a future market
What are the four basic economic questions?
1. What goods will be produced? 2. How will resources be used in production? 3. Who will recieve the goods? 4. When will production occur? (timing)
Which of the following will NOT, all else equal, cause demand for good A to change? A. a change in the price of A. B. a change in the price of B, a complement. C. a change in the price of C, a substitute. D. an increase in average income. E. all of the above cause demand for good A to change.
A. a change in the price of A.
If it is impossible to make somebody better off without making someone else worse off, the current situation must: A. be allocatively efficient. B. not be optimal. C. be inequitable. D. cure the problem of scarcity.
A. be allocatively efficient.
Economists make all of the following assumptions about business firms except: A. firms are the principal owners of factors B. firms generally make consistent decisions C. firms seek to maximize profits D. firms employ factors of production to produce commodities.
A. firms are the principal owners of factors
Economists make all of the following assumptions about business firms except: A. firms are the principal owners of factors of production. B. firms generally make consistent decisions. C. firms seek to maximize profits. D. firms employ factors of production to produce commodities.
A. firms are the principal owners of factors of production.
Consider automobiles and automobile tires. When the price of automobiles decreases, the demand for tires is predicted to: A. increase. B. decrease. C. remain unchanged, although tire prices are likely to fall. D. remain unchanged, although quantity demanded increases.
A. increase.
A free good is not scarce because: A. individuals can have all they desire at zero price. B. price rations the good so that all individuals willing to pay the market price can buy the good and it is, therefore, not scarce. C. human desires for the good exceed the amounts available at a zero money price. D. it is an abundant natural resource. E. a and b.
A. individuals can have all they desire at zero price.
The fundamental role of the gov't in a market economy is to: A. provide a legal system that assures private property rights. B. Regulate financial markets C. Redistribute income D. intervene inmarkets when they fail
A. provide a legal system that assures private property rights.
One purpose of advertising is to: A. shift the demand curve for the good to the right. B. shift the demand curve for the good to the left. C. shift the supply curve for the good to the left. D. make the demand curve for substitute goods shift to the right, thus increasing the demand for the advertised good.
A. shift the demand curve for the good to the right.
Suppose that more illegal immigrant farm workers enter the US. What will be the impact on the market for farm products? A. supply will increase B. supply will decrease C. demand will increase D. demand will decrease
A. supply will increase
What is the definition of Opportunity Cost (OC)?
An opportunity cost equals the value of the next-best foregone alternative, whenever a choice is made. Also, only indirect costs are associated with opportunity costs.
Which of the following statements are generally correct? I. absolute prices are more important in decision making than relative pirces. II. While firms are self-interested (greedy bastards) households are not self interested. A. both statements are true B. both statements are false C. I is true and II is false D. I is false and II is true.
B. both statements are false
Suppose you need to study six hours per week to earn a C, nine hours per week to earn a B, and 15 hours per week to earn an A. This implies: A. increasing returns to hours studied. B. decreasing returns to hours studied. C. constant returns to hours studied. D. that extra study is a waste of time
B. decreasing returns to hours studied.
A fall in the price of raw milk, used in the production of ice cream, will: A. decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left. B. increase the supply of ice cream, causing the supply curve of ice cream to shift to the right. C. have no effect on the supply of ice cream at all. D. have no effect on the supply curve of ice cream, but will cause a downward movement along the supply curve of ice cream.
B. increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.
The quantity demanded will equal the quantity supplied at a free market equilibrium and also when: A. a price floor is established above the equilibrium price. B. suppliers are able to sell their commodity for the black market price. C. a price ceiling is established below the equilibrium price. D. an effective price ceiling exists and the government is able to prevent the development of a black market. E. none of the above cause quantity demanded to equal quantity supplied.
B. suppliers are able to sell their commodity for the black market price.
Microeconomics is not concerned with: A. the quantities of each good produced. B. the size of aggregate money flows in the economy. C. the distribution of goods among households. D. the allocative function of changes in relative prices. E. microeconomics is concerned with all of the above.
B. the size of aggregate money flows in the economy.
In class, we demonstrated that the quantity demanded for a given product was inversely related to its absolute price, all else equal. This relationship is explained by which of the following statements? A. consumers gain more satisfaction from goods when the good's absolute price is lower. B. the substitution effect causes consumers to buy more of any good at lower absolute prices, all else equal. C. quantity demanded depends upon relative price not absolute price and since absolute and relative price are inversely related a fall in absolute price always leads to a decrease in quantity demanded. D. since real income rises as absolute price rises, all else equal, quantity demanded will increase for any good assuming it is a normal good. E. none of the above.
B. the substitution effect causes consumers to buy more of any good at lower absolute prices, all else equal.
All of the following are examples of opportunity cost except: A. the leisure time sacrificed to study for an exam. B. the tuition fees paid to a university. C. the income which could have been earned by a college student had he or she worked full time instead of attending college. D. the building which could have been built with the construction materials and labor used to build a new university library. E. all of the above are examples of opportunity costs.
B. the tuition fees paid to a university.
Which of the following will cause an increase in the supply of U.S. wheat? A. unionization of farm labor. B. the introduction into the U.S. of a disease which kills high yield hybrid wheat strains but NOT low yield strains. C. A temperance movement in the U.S. gains popular acceptance and demand for beer and barley (an input in beer production) fall. (Assume wheat and barley are substitutes in production.) D. "natural" grains and cereals (including wheat) become more popular in the U.S. E. none of the above.
C. A temperance movement in the U.S. gains popular acceptance and demand for beer and barley (an input in beer production) fall. (Assume wheat and barley are substitutes in production.)
Which of the following statements are generally correct? I. All else equal, as the price of a good rises the quantity demanded will decrease. II. All else equal, as the price of a good rises the quantity supplied will decrease. A. both statements are true. B. both statements are false. C. I is true while II is false. D. I is false while II is true.
C. I is true while II is false.
When the actual price of a good is above its equilibrium market price, competition among: A. buyers will force the actual price upward. B. sellers will force the actual price upward. C. sellers will force the actual price downward. D. buyers will force the actual price downward. E. none of the above.
C. sellers will force the actual price downward.
Picture regular PPF curve with A, B, & C planted where they usually are on this curve. Point C on the graph indicates which of the following: A. unemployment or technological inefficiency exists in this economy. B. Full employment and technological efficiency exist in this economy. C. Point C is unattainable with the current level of technology and productive resources. D. Allocative efficiency exists in this economy.
C. Point C is unattainable with the current level of technology and productive resources.
Opportunity cost equals: A. the cale of all foregone alternatives when a choice is made. B. The value of the least valued alternative when a choice is made. C. The value of the next best alternative when a choice is made. D. the price of the alternative in dollars.
C. The value of the next best alternative when a choice is made.
Which of the following is a positive statement? A. An unemployment rate of 7 percent is a national disgrace. B. Unemployment is not so important a problem as inflation. C. When the national unemployment rate is 7 percent, the unemployment rate for inner-city youth is often close to 40 percent. D. Unemployment and inflation are equally important problems.
C. When the national unemployment rate is 7 percent, the unemployment rate for inner-city youth is often close to 40 percent.
Which of the following would tend to increase U.S. production possibilities in the future? A. the U.S. enters World War II. B. a new hybrid for wheat is discovered. C. a government program is instituted that encourages college education. D. the present wage differential between Mexico and the U.S. slowly erodes over time. E. none of the above will increase U.S. production possibilities in the future.
C. a government program is instituted that encourages college education.
Which one of the following would be most likely to cause the demand for firewood to increase? A. a decrease in the price of firewood. B. a decrease in the price of electricity. C. an increase in the price of fuel oil. D. a reduction in the price of chain saws, which are used to cut firewood. E. all of the above will cause an increase in demand for firewood.
C. an increase in the price of fuel oil.
If it is observed that, in a particular market, price has risen and quantity exchanged has increased, it is likely that: A. supply has increased. B. supply has decreased. C. demand has increased. D. demand has decreased.
C. demand has increased.
A price completely stabilized by the government buying surpluses and selling its stocks when there are shortages means that: A. poor farmers will benefit the most. B. government has imposed a perfectly vertical demand curve on farms. C. farmers' revenues will be proportional to output. D. all farms will have satisfactory incomes and receipts will be stabilized. E. none of the above.
C. farmers' revenues will be proportional to output.
Suppose it is observed that initially increases in income cause consumption of hamburger to rise but that as income continues to rise consumption of hamburger begins to decline. This would imply that hamburger: A. is a normal good. B. is an inferior good. C. is a normal good at low income levels but an inferior good at high income levels. D. is an inferior good at low income levels but a normal good at high income levels.
C. is a normal good at low income levels but an inferior good at high income levels.
To say that the demand curve for movies is downward sloping to the right means that: A. less will be demanded at lower prices. B. more will be demanded as color TV sets become more expensive. C. less will be demanded at higher prices. D. less will be demanded if movies become poorer in quality.
C. less will be demanded at higher prices.
Economic theory suggests that divorce rates are higher in urban areas as opposed to rural areas for all of the following reasons except: A. the (opportunity) cost of divorce for women in rural areas is higher than for women in urban areas. B. the benefits from marriage are generally greater in rural areas than in urban areas. C. life tends to be less stressful in rural areas than in urban areas. D. women in urban areas have more earning capacity than women in rural areas.
C. life tends to be less stressful in rural areas than in urban areas.
The "vicious circle of poverty" faced by many third world countries refers to the fact that: A. most third world countries are ruled by totalitarian or marxist governments that are unable or unwilling to produce efficiently which leads to a vicious circle of poverty for their citizens. B. most third world countries are ruled by totalitarian or marxist governments that choose to produce consumption goods for the ruling class while leaving most of the population in poverty. C. most third world countries have very little resources but large populations and must produce mainly consumption goods just to feed their population at a subsistence level. D. most third world countries are unable to borrow a sufficient amount of money from developed countries to allow investment in capital goods. E. none of the above.
C. most third world countries have very little resources but large populations and must produce mainly consumption goods just to feed their population at a subsistence level.
You know the following facts: a) the Boston Celtics have just won the 1989 NBA championships with the LA Lakers. Both Larry Bird and Magic Johnson, wearing Converse basketball shoes, have played magnificently. As a result, millions of young boys and girls wish to emulate them in every particular. b) Converse announces major labor strikes by 50% of their employees. What is the effect on Price and Quantity exchanged in the market for Converse basketball shoes? A. price would increase and quantity exchanged would decrease. B. price and quantity exchanged would both decrease. C. price would increase and quantity exchanged would be indeterminate. D. price would be indeterminate and quantity exchanged would not change. E. there is not enough information to determine either price or quantity.
C. price would increase and quantity exchanged would be indeterminate.
If, in response to a price ceiling, a black market develops that gains control of all of the supply of the commodity, all of the following will be true except: A. the black market price will be higher than the ceiling price. B. excess profits will go to the black marketeers. C. quantity demanded will exceed quantity exchanged at the black market price. D. the black market price will be higher than the equilibrium price. E. all of the above are true.
C. quantity demanded will exceed quantity exchanged at the black market price.
At the beginning of world war II, the U.S. moved from the interior of their production possibility frontier to the boundary. In the graph above, this is represented by a move from point A to point B. What is the opportunity cost to the U.S. of making that decision? A. since no consumption goods are sacrificed by moving from point A to B, the opportunity cost is zero. B. while the opportunity cost is positive, it is impossible to show it exactly on the graph. C. since the U.S. could have moved to point C rather than point B, the opportunity cost of moving to point B is the loss in potential consumption equal to the horizontal distance C1 - C2. D. while it does not include the loss of any consumption goods, the opportunity cost does include the loss of american lives and property that occurred during the war. E. none of the above.
C. since the U.S. could have moved to point C rather than point B, the opportunity cost of moving to point B is the loss in potential consumption equal to the horizontal distance C1 - C2.
Use the table below to answer this question. "Guns" 0 100 200 300 400 500 "Bread" 1000 900 750 550 300 0 Consider the above production possibilities table. The table shows the maximum combinations of bread and guns that can be produced when all resources are fully employed. We can conclude that: A. the opportunity cost of producing 200 guns instead of 100 guns is 750 units of bread. B. the opportunity cost of producing 500 guns instead of 300 guns is zero since we don't have to give up any bread. C. the opportunity cost of producing 400 guns instead of 100 guns is 600 units of bread. D. the opportunity cost of producing 300 units of bread instead of 750 units of bread is 400 guns. E. none of the above.
C. the opportunity cost of producing 400 guns instead of 100 guns is 600 units of bread.
In 1968, there were 20 million acres of commercially valuable forestland in Utah. The timber on this land was worth roughly 2 billion dollars. In 1969, forest fires destroyed half of this timber, yet the value in the market for the remaining timber was higher (2.6 billion dollars) than in 1968. A. this shows how the market maximizes human satisfaction. B. this shows that market prices are an inaccurate measure of value because half of a forest can not be worth more than the full forest. C. this could happen if, for whatever reason, demand for timber increased simultaneously driving up both the price and quantity demanded of timber. D. none of the above.
C. this could happen if, for whatever reason, demand for timber increased simultaneously driving up both the price and quantity demanded of timber.
Which of the following is "not" illustrated by a production possibility boundary? A. scarcity B. opportunity cost C. necessity for choice D. allocative efficiency E. all of the above are illustrated
D. allocative efficiency
A subsidy on a good does not: A. drive a "wedge" between the prices buyers pay and the prices sellers receive. B. tend to increase the supply of the commodity from consumers' perspective. C. tend to increase demand from the perspective of suppliers. D. always mean that suppliers receive more and buyers pay less. E. none of the above.
D. always mean that suppliers receive more and buyers pay less.
A fall in the price of raw milk, used in the production of ice cream, will: A. decrease the supply of ice cream. B. increase the quantity supplied of ice cream. C. have no effect on the supply of ice cream. D. decrease the price while increasing the quantity demanded of ice cream. E. none of the above.
D. decrease the price while increasing the quantity demanded of ice cream.
Markets for factor services arise: A. in economies where each household is self-sufficient. B. in barter economies only. C. in any economy, regardless of how it is organized. D. in an economy characterized by specialization of labor.
D. in an economy characterized by specialization of labor.
As a household's average income rises, we usually expect: A. the proportion of its income allocated to food to increase, as food is a necessity. B. its expenditure habits to remain constant, as income changes have no effect on demand. C. its demand for goods to increase because the price of these goods will decline. D. its demand for luxuries to increase.
D. its demand for luxuries to increase.
You know the following facts: a) the Boston Celtics have just won the 1989 NBA championships with the LA Lakers. Both Larry Bird and Magic Johnson, wearing Converse basketball shoes, have played magnificently. As a result, millions of young boys and girls wish to emulate them in every particular. b) Nike invests in new equipment that significantly increases labor productivity. What is the effect on Price and Quantity exchanged in the market for Nike basketball shoes? A. quantity exchanged would decrease and price would be indeterminate. B. price and quantity exchanged would both decrease. D. price would decrease and quantity exchanged would be indeterminate. E. there is not enough information to determine either price or quantity.
D. price would decrease and quantity exchanged would be indeterminate.
Which of the following statements about quantity demanded is not true? Quantity demanded is: A. a desired quantity, not necessarily the quantity exchanged. B. effective demand, or the amount people are willing to buy at a particular price. C. expressed as a certain amount per period of time. D. the entire relation between price and quantity.
D. the entire relation between price and quantity.
Production possibility frontiers are thought to be concave from the origin (bowed out) because: A. of the different intensities with which commodities and services are used in producing capital, land, and labor. B. land, labor, and capital are used in fixed proportions in producing all commodities and services. C. of the different intensities of people's labor efforts. D. all productive resources are equally suited for producing all goods. E. productive resources differ in their suitability for producing different goods.
E. productive resources differ in their suitability for producing different goods.
Suppose you have to wait in line to purchase a soft drink at a Missouri State - Tulsa football game. The drink costs one dollar. While, waiting in line, you hear the crowd roar as someone scores a touchdown. While running back to your seat, you fall and spill your drink on another spectator. What is your opportunity cost for the drink? A. the cost of the drink plus the lost enjoyment of not seeing Missouri State score another touchdown (it couldn't have been Tulsa). B. the cost of the drink, the lost enjoyment of not seeing the Missouri State touchdown, your thirst (you didn't get a drink), and the discomfort (to the other spectator) of sitting in the sun with wet, sticky clothing. C. the lost enjoyment of not seeing the Missouri State touchdown, your thirst (you didn't get a drink), and the discomfort (to the other spectator) of sitting in the sun with wet, sticky clothing. D. the lost enjoyment of not seeing the Missouri State touchdown, your thirst (you didn't get a drink), and your discomfort (assuming the other spectator responded by throwing his drink in your lap) of sitting in the sun with wet, sticky clothing.
D. the lost enjoyment of not seeing the Missouri State touchdown, your thirst (you didn't get a drink), and your discomfort (assuming the other spectator responded by throwing his drink in your lap) of sitting in the sun with wet, sticky clothing.
Technological inefficiency occurs when: A. It is impossible to make someone better off without making someone else suffer. B. it is possible to make someone better off without making someone else suffer. C. the maximum output is being produced given the resources available. D. the maximum output is not being produced given the resources available.
D. the maximum output is not being produced given the resources available.
Which of the following is a stock concept? A. the weekly receipts of a drugstore. B. a household's rent payment. C. an accountant's salary. D. the number of incoming freshmen at Missouri State in fall 1988. E. all of the above are flow variables.
D. the number of incoming freshmen at Missouri State in fall 1988.
Which of the following will not increase demand for gas? Decrease price of gas ((increase in quantity demand)) Decrease price of cars ((increase in demand)) Increase # of buyers ((increase in demand)) Increase income ((increase in demand)) All of the above increases
Decrease price of gas ((increase in quantity demand))
All of the following would tend to increase a nations production possibilities EXCEPT: A. the society becomes more accepting of women who work. B. a new hybrid for wheat is discovered. C. a government program is instituted that encourages college education. D. the nation decides (by whatever method) to increase production of investment goods and decrease production of consumption goods. E. all of the above would tend to expand a nations production possibilities.
E. all of the above would tend to expand a nations production possibilities.
During 1988's presidential election, Jesse Jackson, Ted Kennedy and others strongly endorsed the need for an increase in the current minimum wage. Suppose that the current minimum wage is actually increased and that the government can enforce the minimum wage and the minimum wage is actually above the equilibrium wage for at least some workers. We would expect: A. the number of jobs available to black youths and other relatively unskilled workers to fall. B. the number of jobs available to union workers and other relatively skilled workers to rise. C. wage income to fall for at least some unskilled workers. D. wage income to rise for all relatively skilled workers. E. all of the above.
E. all of the above.
Legalizing the use of addicting drugs would have all of the following effects except: A. the supply of addicting drugs would increase. B. the demand for addicting drugs would increase. C. in the long-run, price would fall while quantity exchanged would rise. D. the quality of addicting drugs being sold in the legalized market would be expected to be better than in the illegal market. E. all of the above.
E. all of the above.
Most of economic theory: A. views charitable human actions as especially moral. B. assumes that groups of people often behave irrationally. C. is based on the notion that politicians, entrepreneurs, and criminals are especially selfish and greedy. D. views individuals as home economists. E. assumes that individuals act purposefully and rationally to maximize their own self interest.
E. assumes that individuals act purposefully and rationally to maximize their own self interest.
1. Suppose that in the land of Plenty there is no scarcity. We can conclude that: A. all resources are fully employed. B. the production possibilities curve is concave to the origin. C. opportunity costs are zero when the production of bread increases. D. all goods are free. E. both c and d are correct.
E. both c and d are correct.
The quantity demanded will equal the quantity supplied at a free market equilibrium and also when: A. a price floor is established above the equilibrium price. B. a shortage of a commodity persists. C. a price ceiling is established below the equilibrium price. D. an effective price ceiling exists and the government is able to prevent the development of a black market. E. none of the above cause quantity demanded to equal quantity supplied.
E. none of the above cause quantity demanded to equal quantity supplied.
Excess supply for a commodity is ordinarily eliminated through market forces by: A. price rising, demand decreasing, and supply increasing. B. price rising, quantity demanded decreasing, and quantity supplied increasing. C. price rising, demand increasing, and supply decreasing. D. price rising, quantity demanded increasing, and quantity supplied decreasing. E. none of the above eliminate excess supply.
E. none of the above eliminate excess supply.
What are the 3 actors in an economy?
Households, firms and government
Define: Scarcity.
Human wants (not needs) exceed the resources available that are necassary to produce the goods used to satisfy these wants.
Monetary vs relative prices
Monetary prices: actual price (also called absolute & nominal prices) Relative price: based off of resources and other goods prices (people typically base their choices off of this price)
What is the definition of the law of diminishing returns?
The Law of Diminishing Returns - as the production of a good increases, ceteris paribus, the increase in output for a fixed increase in resources must eventually become smaller.
Define the law of supply.
The law of supply simply acknowledges that price and QS are directly related. That is, as price increases then QS also increases, ceteris paribus, and the reverse.
What is the income effect?
When the price of a good falls, ceteris paribus, individuals tend to buy more of that good because they have more money. They don't have more money directly, since other effects, such as their actual income, are being held constant, but they do have more money indirectly. That is, with the lower price, the individual consumer can afford to buy exactly the same amount of all goods as before and have money remaining. Then, with the remaining money the consumer will buy more of all goods, including the good whose price fell. (This assumes that the good is a "normal" good, defined in more detail below.) The reverse would happen for a price increase.
