ECON 120 exam 2

Exports are domestically produced goods and services

sold to other countries.

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

0.5

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

0.5; The product is inelastic.

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply

1.22

Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 9-6. What is the opportunity cost to produce 1 hat in Belize?

1/2 of a clock

Refer to Figure 6-1. A perfectly elastic demand curve is shown in

Panel B

The above panels show various combinations of indifference curves and budget constraints for two products: Popcorn and Candy. Refer to Figure 10-7. A change in the price of candy only is shown in

Panel C

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes

A tariff is a tax imposed by a government on

imports

Goods and services bought domestically but produced in other countries are referred to as

imports

) Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

the income and substitution effects

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

the income effect

The slope of the indifference curve is referred to as

the marginal rate of substitution.

Refer to Figure 10-10. The change in the budget constraint from BC1 to BC2 implies

the price of DVDs has increased, and the price of CDs has decreased.

The income elasticity of demand measures

the responsiveness of quantity demanded to change in income.

The ratio at which a country can trade its exports for imports from other countries is called

the terms of trade.

When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of pistachio nuts is $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand, we can say that the demand for pistachio nuts is

unit elastic

The demand curve for a Giffen good is

upward sloping

________ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Comparative advantage

A situation in which a country does not trade with other countries is called

AUTARKY

Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 9-6. Which country has a comparative advantage in producing hats?

Belize

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

COMPLEMENTS

Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. 27) Refer to Table 9-6. Which country has an absolute advantage in producing clocks?

Denmark

________ refers to reductions in a firm's costs that result from an increase in the size of an industry.

External economies

A tariff is a tax imposed by a government on its own exports

FALSE

Behavioral economics is the study of situations in which people make rational choices.

FALSE

The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called absolute advantage.

FALSE

Goods with upward sloping demand curves are referred to as

Giffen goods.

What does the marginal rate of substitution measure?

It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

A sunk cost is a cost that has already been paid and cannot be recovered

TRUE

Necessities tend to have more inelastic demand than luxuries

TRUE

When there are few substitutes available for a good, demand tends to be relatively inelastic.

TRUE

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

[Q1-Q2/(Q1+Q2)/2]/[P1-P2/(P1+P2)/2]

Refer to Figure 6-3. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f

[Q1-Q2/(Q1+Q2)/2]/[P1-P2/(P1+P2)/2]

When Roxanne, a U.S. citizen, purchases a designer dress from Saks Fifth Avenue that was made in Milan, the purchase is

a U.S. import and an Italian export

The amount of income a consumer has to spend on goods and services is known as

a budget constraint.

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

an indifference curve

The concept of ________ explains how trade between two countries can make each better off.

comparative advantage

If preferences are transitive, indifference curves

do not intersect.

The demand for gasoline in the short run is

inelastic because there are very few good substitutes for gasoline.

If a good has a negative income elasticity of demand, this indicates that the good is

inferior

Costs that have already been incurred, and which cannot be recovered, are known as

sunk costs.

Absolute advantage is

the ability to produce more of a good or service than competitors when using the same amount of resources.

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint.