Econ Exam 1 Practice Questions

If the price increases by 100% and the quantity decreases by 50%, then the elasticity of demand is

-0.5

Which example represents incentives for decisions?

1. tax deductions for individual retirement accounts 2. investment tax credits for businesses 3. tax deductions for education savings accounts (All of them)

Capital includes all of these EXCEPT: a. dollar bills in a bank b. copy machines in an insurance company c. tractor loaders of a construction firm d. drilling equipment

A. dollar bills in a bank vault

Consider the following statements. Which, if any, are positive statements? a. Main Street needs more coffee shops b. A new parking garage on campus will reduce parking congestion c. Last winter, the state should have spent more money on snow removal

B

Willingness to pay is the

highest value that a consumer believes a good or service is worth

Which is NOT considered a basic economic question?

How will the system accommodate change?

A basic belief of economics is that

In general, people respond to economic incentives

Consider the demand for olive oil. What would happen to the demand for olive oil if a study confirming its beneficial health effects is published at the same time that an investigate report finds that much of the olive oil imported into the country is actually sunflower oil that has been dyed?

We would expect demand to shift in each direction, but the final position will depend on which event has the bigger impact on demand

Marginal analysis would put an emphasis on

additional costs and benefits

If a store sells a good with a highly elastic demand, then a decrease in the price would lead to

an increase in total revenue

A market economy is also known as ______ economy, and decisions are made by ______.

capitalist, private individuals

Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor

causes a surplus of milk in the market

Tax burdens are higher on consumers when

demand is inelastic and supply is elastic

When market failure occurs, it often creates an incentive for

government intervention into the market

The more responsive buyers are to a change in price, the

greater the price elasticity of demand

Suppose your income falls from $35,000 to $33,000 and that your quantity demanded of a good increases from 40 units to 55 units. The good is said to be a(n)

inferior good

When quantity demanded in a market equals quantity supplied, than the

market is in equilibrium

Producer surplus is the difference between the

market price and the minimum price the seller is willing to accept

Which of these is NOT an economic factor of production? a. land b. entrepreneurial ability c. money d. labor

money

A country operating outside of the production possibilities frontier is

operating impossibly because a country cannot operate outside of the production possibilities frontier

The price elasticity of demand measures the

percentage change in quantity demanded divided by the percentage change in price

An effective price ceiling leads to

quantity demanded exceeding quantity supplied

When an economy is operating efficiently, the production of one more unit of a good will result in some loss of production of another good because

resources are limited and efficiency implies that all resources are already in use

When quantity supplied exceeds quantity demanded, a _____ occurs and prices are pushed _____ toward equilibrium

surplus; down

A common definition of economics is that it is the study of

the allocation of scarce resources to satisfy competing wants

The basic idea of opportunity cost is that

the decision to use resources in one activity means that the resources cannot be used elsewhere

When economists refer to a market demand curve, they mean that it represents

the horizontal summation of individual demand curves

Which concept would be addressed by microeconomics?

the price of college tuition that an individual student pays

In a market-based economy, scarce resources are allocated by

the price system

At any price below the equilibrium price

the quantity demanded exceeds the quantity supplied in the market

If a price ceiling is set above the equilibrium price in the market, producer surplus will be

the same as it would be without the price ceiling

When markets are efficient

the sum of consumer and producer surplus is maximized

Tax incidence is defined as

who bears the burden of a federal or local tax