Econ 202 Meer Test 1 Review
Suppose your expenses for this term are as follows: tuition: $12,000, room and board: $6,500, books and other educational supplies: $1,500. Further, during the term, you can only work part-time and earn $3,500 instead of your full-time salary of $14,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?
$24,000
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________.
$3
Are you richer than
-King George of England -Most people today
Scarcity means that
-We must find ways to deal with that scarcity. -We must make choices and give up things we really want. -Figure out the best set of social systems to address scarcity.
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
The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about?
15 percent
The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market. Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:
7 bottles.
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.
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
Which of the following pairs of goods is most likely to have a positive cross-price elasticity?
A privately-owned car and public transportation
Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?
A twofold increase in the price of pens and a threefold increase in the price of pencils
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
Which of the following is the formula to calculate arc elasticity of demand?
Arc elasticity of demand = [(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]
When people invest in a business, those investments
Are efficient if they are investing their own money.
The steps needed to evaluate the best way to organize an economy include:
Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes.
All else equal, as the price of a product falls, the quantity supplied increases.
False
If consumers believe the price of LCD televisions will decrease in the future, this will cause the demand for LCD televisions to increase now.
False
If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.
False
If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.
False
Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."
False
The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.
False
Which of the following is a normative economic statement?
Farmers should not be allowed to grow and sell genetically-modified crops.
Trade
Has been a feature of nearly all economies.
The three fundamental questions that must be answered by any economy include:
How much to produce, how to produce goods, and who gets the goods.
budget constraint
If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.
Which of the following is a positive economic statement?
If the price of beef falls, a larger quantity of it will be bought.
Which of the following is a positive economic statement?
If the price of iPhones falls, a larger quantity of iPhones will be purchased.
Hunter-gatherer societies allocated resources by a combination of
Individual decisions. Sharing customs. Organized activity
Which of the following is not an economic question: Do we have enough medical care in the economy? Should we recycle more? Should we make hybrids or SUVs? Is it better for stores to close on Sundays?
Is it better for stores to close on Sundays?
Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?
It is perfectly inelastic.
Advantages of trade include that
It permits specialization. It takes advantage of comparative advantage.
Which of the following goods is likely to have the lowest price elasticity of demand?
Life-saving drugs
Scarcity in an economy emerges from
Limited resources and infinite wants.
Adam Smith's proposition or theorem consists of
Market outputs are efficient, those outputs are produced efficiently, and those outputs are allocated among buyers in the most efficient way.
The key advantage of market exchange compared to one-on-one (barter) trade is that
Markets use money, which is generally better. Barter limits trades because each person must want what the other one has. Markets are more efficient.
According to the video, is there enough BlueBell?
No
A hunter-gatherer society -Is a notable exception to the general proposition that all societies must answer the question of what to produce. -Is a notable exception to the general proposition that all societies must answer the question of how to produce it. -Is a notable exception to the general proposition that all societies must answer the question of who gets it.
None of the above
In general, People should never work in teams because they can make more money by specializing. We should make more energy efficient cars. We should recycle more.
None of the above are generally true.
Which of the following are assumptions needed for simple arithmetic
Numbers exist. Addition.
The video describes the steps in simple arithmetic as proceeding from
Numbers to cardinal numbers to addition to subtraction to multiplication to division.
People do not "feel" rich because
People always want more.
Which of the following is a normative economic statement?
Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.
In which of the following ways did the video not indicate you were rich compared to King George?
Power
Which of the following is a positive economic statement?
Raising the tax on gasoline raises the selling price of gasoline.
According to the video, recycling is an economic problem because
Recycling requires and produces economic resources.
Central control of economies
Regulated resources like land and water.
Which of the following is a positive economic statement?
Scarcity necessitates that people make trade-offs.
Which of the following are assumptions of economics
Scarcity.
Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?
Supply is perfectly elastic.
Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in this year's grape harvest. What happens in the California wine market as a result of this announcement?
The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?
The elasticity coefficient is likely to be low and supply is highly inelastic.
If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then
The market equilibrium quantity of tacos is efficient. The market equilibrium quantity of enchiladas is efficient.
Which of the following statements correctly differentiates between the slope of the demand curve and price elasticity of demand along a linear demand curve?
The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve.
Which of the following is a normative economic statement?
The price of gasoline is too high.
Which of the following is a normative economic statement?
The price of wheat is too low.
the budget constraint
The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
the budget constraint.
The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
Adam Smith's book, the Wealth of Nations, investigated
The role of markets in determining economic efficiency.
In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States?
The supply curve shifted to the left.
Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
There is a decrease in the supply of pool maintenance services.
Harvey Rabbitt pays for monthly cable TV service. Last week the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area. How is the market for cable TV services affected by this?
There is an increase in the supply of cable TV service.
When sellers sell goods in a market they are doing so because
They can make more money selling that good than doing something else.
When buyers buy goods in a market they are doing so because
They prefer the good to the other good.
Which of the following can be derived from other assumptions of economics
Tradeoffs. Opportunity costs.
"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.
True
An increase in the quantity of a product supplied is caused by an increase in the price of the product.
True
Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.
True
When voluntary exchange takes place, both parties gain from the exchange.
True
A major question that faced societies 250 years ago was
What would happen if you organized more of the economy with markets.
Which of the following examples best describes the Law of Demand?
When the price of bread doubles, John's consumption of bread halves.
Which of the following examples best describes the Law of Demand?
When the price of tea increased, the quantity demanded of tea decreased.
Using basic assumptions you can determine
Why markets are efficient. When markets are efficient. When government intervention helps or hurts economic performance.
Which of the following is not an economic question: How many iPhones and Droids should we produce? Should we urbanize farmland? How much BlueBell should be made? Would people be better off if they wanted fewer goods? Should we recycle items like plastic bottles and aluminum cans?
Would people be better off if they wanted fewer goods?
Elasticity
________ is the measure of the sensitivity of one variable to a change in another.
A change in the slope of a budget constraint indicates:
a change in the price of either good that causes a change in the opportunity cost.
A movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste.
A budget constraint is a straight line because:
a consumer faces a fixed price of both goods that do not change with changes in consumption.
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as
a decrease in quantity demanded.
Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced
a decrease in supply.
Of the following, which is the best example of good with a perfectly inelastic demand?
a diabetic's demand for insulin
An increase in the price of off-road vehicles will result in
a larger quantity of off-road vehicles supplied.
An increase in the price of pineapples will result in
a larger quantity of pineapples supplied
If opportunity costs are constant, the production possibilities frontier would be graphed as
a negatively sloped straight line.
If a decrease in income leads to a decrease in the demand for mac and cheese, then mac and cheese is
a normal good
Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?
a, b, c
The revenue received from the sale of ________ of a product is a marginal benefit to the firm.
an additional unit
Economists assume that individuals
are rational and respond to incentives.
If the price of lattes, a normal good you enjoy, falls
both the income and substitution effects lead you to buy more lattes.
If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.
budget constraint
If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because
buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer.
Causation occurs when:
change in one variable is the reason for the change in another variable.
If a demand curve shifts to the right, then
demand has increased.
Making "how much" decisions involves
determining the additional benefits and the additional costs of that activity
Which of the following would shift a nation's production possibilities frontier outward?
discovering a cheap way to convert sunshine into electricity
The demand curve for most goods is normally:
downward sloping.
If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is
elastic.
The opportunity cost of going to an outdoor music festival is
equal to the highest value of an alternative use of the time and money spent on the festival.
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time.
Marginal utility is the
extra satisfaction received from consuming one more unit of a product.
An item has utility for a consumer if it
generates enjoyment or satisfaction.
Holding everything else constant, the absolute value of the price elasticity of demand for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes.
greater than
The buyers of a good will want to purchase it as long as their willingness to pay for the good is:
greater than or equal to the price.
A demand curve that is horizontal indicates that the commodity
has a large number of substitutes.
An omitted variable is a variable that:
has been left out, and if included, would explain why the variables considered in a study are correlated.
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch will
increase the demand for the Gear S2.
A production possibilities frontier with a bowed-outward shape indicates
increasing opportunity costs as more and more of one good is produced.
If demand is perfectly elastic, the absolute value of the price elasticity coefficient is
infinity.
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied.
Consumer surplus
is the difference between the willingness to pay and the price paid for a good.
Willingness to pay:
is the highest price that a buyer is willing and able to pay for a unit of good.
If society decides it wants more of one good and all resources are fully utilized, then
it has to give up some of another good and incur some opportunity costs.
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one.
Economists assume that the goal of consumers is to
make themselves as well off as possible.
The extra cost associated with undertaking an activity is called
marginal cost.
The demand by all the consumers of a given good or service is the ________ for the good or service.
market demand
Reverse causality
occurs when the direction of cause and effect is mixed up in a study.
The highest valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
The best alternative use of a resource is referred to as its:
opportunity cost.
Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
people are rational.
Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that
people with health insurance are more likely to be overweight than people without health insurance.
At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is
perfectly inelastic.
If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:
pivot leftward along the vertical axis
If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to
pivot rightward along the horizontal axis.
A decrease in the price of either good will cause a consumer's budget constraint to:
pivot rightward.
If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:
pivots leftward without a change in the intercept on the horizontal axis.
Economic models do all of the following except
portray reality in all its minute details.
As the ________ increases, ________.
price of a good; its quantity demanded decreases
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
price; quantity; price
Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
rationally
A budget constraint
refers to the limited amount of income available to consumers to spend on goods and services.
Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006. Based on the information above, the demand for Hendrix College education is
relatively inelastic.
If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is
relatively inelastic.
A change in the quantity demanded of a good is:
represented by a movement along the demand curve.
Economic decline (negative growth) is represented on a production possibilities frontier model by the production possibility frontier
shifting inward
The supply curve for watches
shows the relationship between the price of watches and the quantity of watches supplied.
The market for smartwatches has begun to grow, due in part to the success of the Apple Watch. Following the successful launch of the Apple Watch in 2015, companies such as Samsung, Sony, and LG have all developed products to compete with the Apple Watch. The smartwatches introduced to compete with the Apple Watch would be considered
substitutes for the Apple Watch.
Tomas increased his consumption of potato chips when the price of pistachios increased. For Tomas, potato chips and pistachios are
substitutes in consumption.
The income effect of an increase in the price of peaches is
the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources.
If the price of a good increases, ________.
the consumer surplus decreases
If the price of automobiles was to increase, then
the demand for gasoline would decrease.
The principle of opportunity cost is that
the economic cost of using a factor of production is the alternative use of that factor that is given up.
Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:
the opportunity cost of buying sweaters increases.
The slope of a budget constraint represents:
the opportunity cost of one good in terms of another.
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price.
If the demand for a steak is unit elastic, then
the percentage change in quantity demanded is equal to the percentage change in price.
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if
the price of the good changes.
The Law of Demand states that:
the quantity demanded of a commodity varies inversely with the price of the commodity.
The law of demand implies, holding everything else constant, that as the price of bagels increases,
the quantity of bagels demanded will decrease.
Elasticity is:
the ratio of the percentage change in two variables.
If, in the market for oranges, the supply has increased then
the supply curve for oranges has shifted to the right.
If in the market for peaches the supply curve has shifted to the left,
the supply of peaches has decreased.
If the market for a product is broadly defined, then
there are few substitutes for the product and the demand for the product is relatively inelastic.
A correlation between two variables implies that:
there is a mutual relationship between both the variables.
Economists assume that rational people do all of the following except
undertake activities that benefit others and hurt themselves.
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic.
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued.
If demand is perfectly inelastic, the absolute value of the price elasticity of demand is
zero.