Econ Exam 1

Specialization and trade

allows nations to consume combinations of products that are outside their individual production possibilities frontier.

In a production possibilities frontier graph, the cost of producing more units of a good is measured by the

amount of the other good or service that must be forgone.

An increase in both the equilibrium price and quantity can be the result of

an increase in demand.

Which of the following increases the quantity supplied of yoga pants but does NOT increase the supply of yoga pants?

an increase in the price of a yoga pants

Consider the market for smart phones. Which of the following shifts the demand curve rightward?

an increase in the price of land-line phone service, a substitute for smart phones

Which of the following results in a movement upward along the supply curve for movies in theaters?

an increase in the price of movie tickets

Suppose over the next several years the productivity of firms producing electric cars improves dramatically. The advance in productivity leads to

an increase in the supply electric cars so that the supply curve shifts rightward.

What is gained when people engage in specialization and trade?

Specialization and trade allow people to consume outside their individual production possibilities frontiers.

Why is a production possibilities frontier bowed out (concave)?

The bowed shape reflects increasing opportunity cost.

Oil refiners can refine a barrel of petroleum so that it yields either more home heating oil or more diesel fuel. If the price of diesel fuel falls, there is

an increase in the supply of home heating oil.

Suppose the price of leather used to produce shoes increases. The higher price of leather ________ the supply of shoes and the supply curve of shoes ________.

decreases; shifts leftward

Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the

demand for Apple computers decreases.

Car insurance and cars are complements. If the price of car insurance increases, the

demand for cars decreases.

Which of the following shifts the supply curve for oranges?

disastrous weather that destroys about half of this year's orange crop

Demand curves slope ________ because as the price increases and other things remain the same, the quantity demanded ________.

downward; decreases

Which of the following statements is true about a competitive market? A competitive market

has so many buyers and sellers that no one can influence the price.

The United Auto Workers bargained for higher wages and more benefits for autoworkers. As a result of the higher wages and increased benefits, i.the quantity of new automobiles supplied decreases. ii.the supply of new automobiles decreases. iii.the supply of new automobiles increases.

only ii The supply of new automobiles decreases.

A country has a comparative advantage in the production of a good if it can

produce the good at the lowest opportunity cost.

In a recession, consumers have less income to spend. As a result, if dining out is a normal good, then which of the following would happen to the demand curve for dining out?

The demand curve would shift leftward.

What happens to the demand for a good if a complement's price increases?

The demand decreases and the demand curve shifts leftward.

Water bottlers announce that next month the price of bottled water will rise by 25 percent. Which of the following occurs immediately?

The demand for bottled water increases.

A huge 50 percent off sale on golf clubs is advertised for next week. What happens this week in the market for golf clubs?

The demand for golf clubs decreases.

Suppose that the equilibrium price and quantity of new houses both increase. Which of the following could be a cause of this change?

The demand for new houses increased, and the supply did not change.

In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior?

The law of demand is being used to increase the quantity demanded.

Which of the following helps explain why the law of supply exists?

The law of increasing opportunity cost

Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?

The production possibilities frontier would shift inward.

Plywood is used in the construction of houses. If the price of plywood rises, what happens to the supply of houses?

The supply decreases so that the supply curve shifts leftward.

Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese?

The supply of cheese decreases.

The price of salsa rises. How does the increase in the price of salsa affect the supply of salsa?

There is no change to the supply of salsa, but the quantity of salsa supplied increases.

If Wendy can produce more of all goods than Tommy in an hour, then

Wendy has an absolute advantage in all goods.

When two countries will not be able to benefit from specialization and trade when producing only two goods?

When the opportunity cost of producing these two goods are exactly the same for both countries.

Suppose the equilibrium quantity of movie tickets is 1,000. If the demand curve shifts ________, the equilibrium quantity of movie tickets will ________.

rightward; increase

If consumers buy a large number of plug-in electric cars, the equilibrium price of electricity will ________ and the equilibrium quantity of electricity will ________.

rise; increase

Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity ________.

rises; increases

The phrase "a change in demand" refers to a

shift of the demand curve.

Two brands of water, Natural Water and Mountain Water, are close substitutes. If the price of Mountain Water decreases, the fall in price

shifts the demand curve for Natural Water leftward.

Moving along a country's PPF, a reason opportunity costs increase is that

some resources are better suited for producing one good rather than the other.

If the demand for used cars decreases after the price of a new car falls, used cars and new cars are

substitute goods.

Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price, a

surplus exists and the price falls to restore equilibrium.

If a market begins in equilibrium and then the demand curve shifts leftward, a

surplus is created, which is eliminated by a fall in price.

Suppose the current price of a pound of steak is $12 per pound and the equilibrium price is $9 per pound. In this case, there is a

surplus, so the price falls and quantity demanded increases.

What is the "quantity demanded"?

the amount of a good people are able and willing to buy during a specific time period and at a given price

Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then

the demand for hot dog buns will increase.

The American Dairy Association starts a highly successful advertising campaign that makes most people want to drink more milk. As a result,

the demand for milk increases.

Which of the following increases the demand for a good?

the expectation that future income will be higher

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As a country moves along the frontier closer to the vertical axis,

the opportunity cost of producing jeans increases.

When a surplus of rice occurs,

the price of rice falls.

Changes in which of the following factors do NOT shift the demand curve?

the price of the good

As we move along the production possibilities frontier,

the production of one good increases as the production of the other good decreases.

What is the correct formula for calculating opportunity cost of good Y if we are producing goods X and Y?

|Loss in X/Gain in Y|

What is the correct formula for calculating opportunity cost of good X if we are producing goods X and Y?

|Loss in Y/Gain X|

Teenagers drink more soda than other age groups. If the number of teenagers increases, everything else remaining the same,

market demand for soda increases.

The production possibilities frontier illustrates the

maximum combinations of goods and services that can be produced.

If a nation has an absolute advantage in producing a good, then it

might or might not have a comparative advantage in producing that good.

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As the country moves along the frontier closer to the horizontal axis,

more shoes are produced.

On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas?

2 pounds of apples

Suppose a country operates on its production possibility frontier when it produces 1,000 books and 1,000 tables. The combination of ________ reflects ________.

500 books and 1,000 tables; an inefficient but attainable point

Which of the following is correct about comparative advantage?

A country has a comparative advantage in the production of a good if it can produce the good at lower opportunity cost than any other country.

A supply curve

Both answers slopes upward and is a graph of the relationship between quantity supplied of a good and its price are correct.

If Country A can produce an extra plane by giving up two boats, and Country B can produce an extra plane by giving up three boats, then

Country A has a comparative advantage over Country B in the production of planes.

David takes 10 minutes to process a customer, and 20 minutes to stock the shelves. Danny takes 15 minutes to process a customer, and 15 minutes to stock the shelves. Which of the following statements is true?

David has a comparative advantage in processing customers but not in stocking shelves.

For country Gamma the opportunity cost for producing 1 computer is 10 tons of steel. For country Beta the opportunity cost for producing 1 computer is 6 tons of steel. Which country has the comparative advantage in the production of steel?

Gamma

Other things equal, if Mexico devotes more resources to train its population than Spain,

Mexico will grow faster than Spain.

Which of the following increases the supply of a good?

Productivity improves.

It is expected that the price of a bushel of wheat will increase in one month. This belief will result in

a decrease in the current supply of wheat.

Which of the following shifts the demand curve for movies leftward?

a decrease in the price of NetFlix, a substitute for movies

Gasoline prices increase by 50 percent and other things remain the same. As a result, there is

a decrease in the quantity of gasoline demanded.

The law of supply states that other things remaining the same, a decrease in the price of a kayak leads to

a decrease in the quantity of kayaks supplied.

A rise in the price of a substitute in production for a good leads to

a decrease in the supply of that good.

A decrease in the price of a complement in production leads to

a decrease in the supply of the good in question.

Consider the market for burritos. The law of demand can be illustrated by

a movement along the demand curve for burritos due to a change in the price of a burrito.

An increase in the quantity demanded is shown as

a movement along the demand curve.

If the demand for digital cameras increases when consumers' incomes rise, then digital cameras are

a normal good.

Which of the following increases the demand for a good or service?

a rise in the price of a substitute good or service

Which of the following does NOT increase the supply of personal computers, that is, does NOT shift the supply curve of personal computers?

a rise the price of a personal computer

Ramen noodles are a staple food item for many college students. Ramen noodles are very inexpensive, easy to prepare, and can be combined easily with other foods. After students graduate, find employment, and earn a higher income, they decrease their Ramen noodle purchases significantly. In this case, Ramen noodles are

an inferior good.

A market is defined as

any arrangement that brings buyers and sellers together.

Production efficiency occurs

at all points on the production possibilities frontier.

A surplus of cardboard boxes means that

at the current price of a cardboard box, the quantity demanded is less than the quantity supplied.

The production possibilities frontier is the boundary between the

attainable and unattainable combinations of goods and services.

Mulch is shredded wood and is a by-product in the production of lumber. Because these two goods are produced together, they are

complements in production.

Suppose that you have 10 acres of land that is being fully used to grow potatoes. All 10 acres are equally productive in terms of growing potatoes. If you start converging your land to industrial use by building workshops on it (one workshop takes 1 acre of land), what should you expect to happen in terms of opportunity cost of each additional workshop?

constant opportunity cost

If the production possibilities frontier between two goods were a straight line, then the opportunity cost of one good in terms of another would be

constant.

When demand increases,

consumers are willing to buy more at any price.

If the price of tangerines increases, the price of oranges also rises because

consumers consider the two goods substitutes and demand for oranges increases.

As a falling price eliminates a surplus in the jersey market,

consumers increase the quantity of jerseys they demand.

When all of the available factors of production are being efficiently employed, the

economy is producing at a point on its PPF.

The law of supply states that, other things remaining the same,

if the price of a good increases, the quantity supplied increases.

To calculate the opportunity cost per unit, you divide the decrease in the quantity of the forgone item by the

increase in the quantity of the other item obtained.

An increase in the number of fast-food restaurants

increases the supply of fast-food meals.

Suppose that you have 20 acres of land that is being fully used to grow corn. Some of your land is more productive and some is less productive in terms of growing corn. If you start converging your land to industrial use by building workshops on it (one workshop takes 1 acre of land), what should you expect to happen in terms of opportunity cost of each additional workshop?

increasing opportunity cost

A demand schedule

is a list of the quantities demanded at each different price when all other influences on buying plans remain the same.

The market demand curve

is the horizontal sum of individual demand curves.

As an economy grows,

its PPF shifts outward.

Market equilibrium occurs when

the quantity demanded equals the quantity supplied.

The price of cotton clothing falls. As a result,

the quantity demanded of cotton clothing increases.

In the production possibilities model, the vertical axis measures ________ and the horizontal axis measures ________.

the quantity of a good or service; the quantity of another good or service

When the price of oranges increases,

the quantity of oranges supplied increases.

The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises,

there is a movement up along the demand curve to a smaller quantity demanded.

If the price is below the equilibrium price,

there is a shortage.