ECON 104 - Exam 1

What are the determinants of demand?

- consumers' tastes - number of buyers in the market - consumers' incomes - prices of related goods - consumer expectations

What are the determinants of supply?

- resource prices - technology - taxes & subsidies - prices of other goods - producer expectations - number of sellers in the market

The demand for commodity X is represented by the equation P = 10 − 0.2Q and supply by the equation P = 2 + 0.2Q. If demand changes from P = 10 − 0.2Q to P = 7 − 0.3Q, the new equilibrium quantity is

10

Making choices based on comparing marginal benefits with marginal costs:

Marginal Analysis

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in market price:

Movement along demand curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in market price:

Movement along the supply curve

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: The number of unemployed workers increases:

No Change

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in the price of an unrelated good:

No Change

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in the price of a related good:

Shift in demand curve

Self-interest helps achieve society's economic goals because

as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost.

What is produced is ultimately determined by

consumers, because if the goods offered are not what consumers want, consumers will not buy them.

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: A devastating earthquake destroys numerous production facilities:

Curve Shifts Inward

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: A new technique improves the efficiency of extracting copper from ore:

Curve Shifts Outward

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: The quality of education increases:

Curve Shifts Outward

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? The supply of cattle hides:

Decrease

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? The supply of leather goods:

Decrease

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Consumers anticipate that the price of small cars will decrease substantially in the near future:

Demand decreases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Income declines and small cars are an inferior good:

Demand increases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? Small cars become more fashionable:

Demand increases

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of large cars rises (with the price of small cars remaining the same):

Demand increases

Which statement is consistent with the law of demand? - A reduction in market price will lead to an increase in quantity demanded. - A reduction in market price will lead to a decrease in quantity demanded. - An increase in market price will lead to an increase in quantity demanded. - At a zero price, quantity demanded will be equal to zero.

A reduction in market price will lead to an increase in quantity demanded.

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in factor productivity:

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in producer expectations:

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in resource prices:

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in taxes:

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in technology:

A shift of the supply curve

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. Change in the price of other goods:

A shift of the supply curve

How is a market demand curve derived from individual demand curves?

Add up quantities demanded by all individual consumers for each price.

Which of the following is the best example of economic investment? - Apple builds a new plant to manufacture iPads. - Your college purchases a 5-year-old building in order to have more classrooms. - A retiree purchases U.S. government bonds. - A company, like Bank of America, acquires another company, like Merrill Lynch.

Apple builds a new plant to manufacture iPads.

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? The price of gasoline substantially drops:

Cannot be determined

The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity:

Economics

The Industrial Revolution began in

England in the late 1700s.

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

False

Starbucks has $1 billion to invest. It can either purchase a rival coffee shop chain or build additional Starbucks shops. If Starbucks chooses to purchase the rival chain, we can conclude that Starbucks' management team determined that the relative profitability of purchasing and owning the rival's existing shops is ___________ unrelated to the same as less than greater than the expected profitability of using the money to build additional Starbucks shops.

Greater Than

Which of the following groups is the principal source of savings in an economy? - banks - government - businesses - households

Households

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? Hide prices:

Increase

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? The price of leather goods:

Increase

The next-best thing that must be forgone in order to produce one more unit of a given product:

Opportunity Cost

The Latin term "ceteris paribus" means:

Other things equal.

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". On a cold day, both the demand for ice cream and the supply of ice cream decrease.

Price: ? Quantity: Decreases

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". On a hot day, both the demand for lemonade and the supply of lemonade increase.

Price: ? Quantity: Increases

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". In a hot area of Arizona where a lot of electricity is generated with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster.

Price: Decreases Quantity: ?

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". When Hawaii's Mt. Kilauea erupts violently, tourists' demand for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases.

Price: Increases Quantity: ?

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in consumer expectations:

Shift in demand curve

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in income:

Shift in demand curve

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve. Change in preferences for this good:

Shift in demand curve

A nation's production possibilities curve might shift to the left (inward) as a result of:

The depletion of its soil fertility due to overplanting and overgrazing.

The economizing problem is:

The need to make choices because economic wants exceed economic means.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply.

The scientific method is:

Used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

The pleasure, happiness, or satisfaction obtained from consuming a good or service:

Utility

Financial institutions reward savers with the following, except - interest - wages - dividends - capital gains

Wages

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

a change in buyer tastes.

Tina walks into Ted's sporting goods store and buys a punching bag for $100. That $100 payment counts as __________ for Tina and __________ for Ted.

expenditure; income

The "coincidence of wants" problem associated with barter refers to the fact that

for exchange to occur, each seller must have a product that some buyer wants.

What is not a typical characteristic of a market system?

government production planning

An advantage of using capital in the production process is that it

improves efficiency, increases output, and provides for growth.

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to

increase the demand for Z.

An increase in consumer desire for strawberries is most likely to

increase the number of strawberry pickers needed by farmers.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's produced 12,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $10 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas:

increased real GDP by $20,000.

There is such a wide variety of desired goods and services in a market system because

individual wants are diverse.

The upward slope of the supply curve reflects the

law of supply.

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 100,000 TVs are produced and sold at a price of $1,000 each. As a result,

nominal GDP decreased

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium

price must rise, but equilibrium quantity may rise, fall, or remain unchanged.

For many decades prior to the Industrial Revolution, the standards of living in England and China

remained roughly constant

The term "division of labor" means that workers

specialize in tasks that take advantage of their individual abilities and skills.

Which of the following is not a determinant of demand for laptop computers? - income of buyers of laptop computers - the cost of inputs for producing laptop computers - the prices of related goods such as software and iPads - expectations about the future price of laptop computers

the cost of inputs for producing laptop computers

Other things equal, which of the following might shift the demand curve for gasoline to the left?

the development of a low-cost electric automobile.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:

the income effect.

Other things being equal, the law of demand suggests that as

the price of iPads decreases, the quantity demanded will increase.

When an economy relies on specialization,

trade enables individuals to obtain the goods in which they do not have a specialization.

Economic systems differ according to which two main characteristics?

who owns the factors of production and the methods used to coordinate economic activity.