Econ 1-18

Economists generally support

free international trade.

Countries that restrict foreign trade are likely to

have more firms with domestic market power.

Efficiency in a market is achieved when

he sum of producer surplus and consumer surplus is maximized.

A market supply curve is determined by

horizontally summing individual supply curves.

A rightward shift of a demand curve is called a(n)

increase in demand.

An increase in the number of college scholarships issued by private foundations would

increase the demand for education.

According to Adam Smith, the success of decentralized market economies is primarily due to

individuals' pursuit of self-interest.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

Another term for factors of production is

inputs.

A statement describing how the world is

is a positive statement.

Economists make assumptions to

make a complex world easier to understand.

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.

As a result of a decrease in price,

new buyers enter the market, increasing consumer surplus.

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

Ensuring that Social Security is financially sound for future generations is an important use of taxpayer dollars" is an example of a

normative economic statement.

A country that currently does not trade with other countries could benefit by

not restricting trade

The minimum wage, if it is binding, lowers the incomes of

only those workers who become unemployed.

Comparative advantage is related most closely to which of the following?

opportunity cost

What must be given up to obtain an item is called

opportunity cost.

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,

other countries have a comparative advantage over England and England will import wine.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

The signals that guide the allocation of resources in a market economy are

prices.

Almost all variation in living standards is attributable to differences in countries'

productivity.

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplied of physicals decreases.

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

raise the price, reduce the quantity, increase total revenues, and increase crime.

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico and the United States.

Rent control policies tend to cause

relatively smaller shortages in the short run than in the long run because supply and demand tends to be more inelastic in the short run than in the long run

A decrease in quantity demanded

results in a movement upward and to the left along a demand curve.

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

rises.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cost of production.

A model can be accurately described as a

simplification of reality.

A marginal change is a

small, incremental adjustment.

A minimum wage that is set above a market's equilibrium wage will result in an excess

supply of labor, that is, unemployment.

The Laffer curve illustrates that

tax revenue first rises, then falls as a tax increases.

A key determinant of the price elasticity of supply is

the ability of sellers to change the amount of the good they produce.

A consumption tax is a tax on

the amount of income that people spend.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

the amount you value the first movie + $3

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing

the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs

Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and

the country becomes an importer of the good as a result.

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

the effect of an increase in the minimum wage on an economy's overall rate of unemployment

A certain production possibilities frontier shows production possibilities for two goods, jewelry and clothing. Which of the following concepts cannot be illustrated by this model?

the flow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing

The "invisible hand" refers to

the free market.

A downward-sloping demand curve illustrates

the law of demand.

A rational decision-maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost.

The amount of deadweight loss that results from a tax of a given size is determined by

the price elasticities of demand and supply

Which of the following will cause an increase in producer surplus?

the price of a substitute increases

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

When two countries trade with one another, it is most likely because

the two countries wish to take advantage of the principle of comparative advantage.

A production possibilities frontier can shift outward if

there is a technological improvement

An economy's production possibilities frontier is also its consumption possibilities frontier

when the economy is self-sufficient.

​Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

​U.S. producers benefit from higher software prices, increasing producer surplus in the market.

​Suppose that a binding rent control law is repealed in San Francisco. As a result, we would expect the total number of units rented in the city to

​increase

Which of these terms are used interchangeably?

"inputs" and "factors of production"

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is

$120.

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175.

Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is

$42,000.

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is

1.22, and basketball tickets are a normal good.

Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam to benefit from trade?

Abby does not like flowers and Liam does not like brownies.

Which of the following statements is not correct?

Absolute advantage is the driving force of specialization

An assumption an economist might make while studying international trade is

All of the above are possible assumptions.

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

The amount of the tax per gallon of gasoline increases.

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The answer depends on the price elasticity of demand.

Which of the following is not correct?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the 25th house, if it is built, will equal $250,000.

A shortage results when a

binding price ceiling is imposed on a market.

Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries,

both Sam and Annie are made better off by trade.

In a competitive market, the quantity of a product produced and the price of the product are determined by

both buyers and sellers.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

A circular-flow model and production possibilities frontier are similar in that

both make use of assumptions.

Which of the following statements about comparative advantage is not true?

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

Each country's production possibilities frontier would shift inward.

Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases?

Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor.

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?

It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?

Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.

Which of the following is a principle concerning how people interact?

Markets are usually a good way to organize economic activity

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives.

When can two countries gain from trading two goods?

Two countries could gain from trading two goods under all of the above conditions.

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

Which of the following is not an example of the principle that trade can make everyone better off?

a. Americans buy tube socks from China. b. Residents of Maine drink orange juice from Florida. c. A homeowner hires the kid next door to mow the lawn. d. All of the above are examples of the principle that trade can make everyone better off. *

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?

a. For the first 30 houses, the average cost per house was $250,000. b. The marginal cost of the 31st house, if it is built, will be $260,000. c. If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. d. All of the above are correct. *

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

a. base of the triangle that represents the deadweight loss triples. b. height of the triangle that represents the deadweight loss triples. c. deadweight loss of the tax increases by a factor of nine. d. All of the above are correct. *

Which of the following steps does an economist take when studying the economy?

a. devise theories b. collect data c. analyze data d. All of the above are correct *

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

a. enhance equality. b. reduce efficiency. c. reduce the reward for working hard. d. All of the above are correct. *

A society allocates its scarce resources to various uses. These scarce resources include

a. land. b. people. c. machines. d. All of the above are correct. *

When a country has a comparative advantage in producing a certain good,

a. the country should import that good. b. the country should produce just enough of that good for its own consumption. c. the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good. d. None of the above is correct *

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

a. the two countries' combined output of both goods will be higher than it would be in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade. d. All of the above are correct. *

A tariff on a product makes

domestic sellers better off and domestic buyers worse off.

A binding minimum wage

alters both the quantity demanded and quantity supplied of labor.

Economic models

are simplifications of reality, and in this respect economic models are no different from other scientific models.

Consumer surplus in a market can be represented by the

area below the demand curve and above the price.

Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology.

A macroeconomist - as opposed to a microeconomist - might study the effect of

changes in the money supply on the inflation rate.

When describing the opportunity cost of two producers, economists use the term

comparative advantage.

When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that

consumer surplus in Mooseland increased by $7 million.

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased.

Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?

differences in personal values