ECON midterm

Suppose that you have received $650 as a birthday gift. You can spend it today or you can put the money in a savings account for a year and earn 2 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is

$663.00

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes

If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is

0.44

If a 39 percent change in price results in a 35 percent change in quantity supplied, then the price elasticity of supply is about

0.90, and supply is inelastic

Nick and Tabitha are two woodworkers who both make tables and chairs. In one month, Nick can make 9 tables or 27 chairs, whereas Tabitha can make 16 tables or 48 chairs. Given this, we know that the opportunity cost of 1 chair is

1/3 table for Nick and 1/3 table for Tabitha.

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by

15 blankets and 35 meals.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.15

Which of the following changes would not shift the supply curve for a good or service?

A change in the price of the good or service

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good?

A decrease in consumer income

For which of the following individuals would the opportunity cost of going to college be highest?

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

Which of the following would shift the demand curve for gasoline to the right?

An increase in consumer income, assuming gasoline is a normal good

Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch"?

Benjamin must decide between going to Florida or Brazil for summer vacation.

What would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes fall and macaroni and cheese is an inferior good?

Both the equilibrium price and quantity would increase.

According to the circular-flow diagram, if Christopher is the owner of a landscaping business and he just received $50 for mowing Mrs. Pendleton's lawn,

Christopher acts as a firm who interacted in the markets for goods and services with Mrs. Pendleton

The president of the United States receives tax policy advice from economists in the

Department of the Treasury.

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

For a self-sufficient producer, the production possibilities frontier

For a self-sufficient producer, the production possibilities frontier

Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

He should sell the car now for $3,800

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Which of the following statements is correct about the roles of economists?

In trying to improve the world, economists are policy advisers.

Which of the following statements about agriculture in the United States is correct?

Increasing the supply of agricultural products typically benefits consumers but harms farmers as a group.

Suppose Jassie and Tucker can both produce two goods: toy cars and dinosaur figures. Which of the following is not possible?

Jim has a comparative advantage in the production of toy cars and in the production of dinosaur figures.

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Lower the price to increase total revenue.

Which of the following is an example of an externality?

Malik's bird chirps loudly during the night, waking his neighbors.

If Mike can produce more donuts in one day than Sue can produce in one day, then

Mike has an absolute advantage in the production of donuts

Economists at which of the following government offices help formulate spending plans and regulatory policies?

Office of Management and Budget

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Assume Ren buys coffee beans in a competitive market. It follows that

Ren cannot influence the price of coffee beans even if he buys a large quantity of them.

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

The Congressional Budget Office

Which of the following statements exemplifies a principle of individual decision making?

The cost of something is what you give up to get it.

Which of the following would likely be studied by a microeconomist rather than a macroeconomist?

The impact of minimum-wage laws on employment in the fast food industry

Which of the following would shift the supply of umbrellas to the left?

The number of firms making umbrellas decreases.

Which of the following events would cause a movement downward and to the left along the supply curve for kiwis?

The price of kiwis falls.

Which of the following events would cause the price of oranges to fall?

The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

When constructing a production possibilities frontier, which of the following assumptions is not made?

The quantities of the factors of production that are available are increasing over the relevant time period

Which of the following is correct?

The slope of a line will be a large positive number for a steep upward-sloping line.

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1,000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1,050 units of food and 47 machines. Which of the following statements is correct?

The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food

Which of the following is not a characteristic of a perfectly competitive market?

There is no free entry or exit.

Two goods are substitutes when a decrease in the price of one good

Two goods are substitutes when a decrease in the price of one good

Who gets scarce resources in a market economy?

Whoever is willing and able to pay the price

The gains from trade are

a result of more efficient resource allocation than would be observed in the absence of trade.

Trade

allows specialization, which reduces costs.

Productivity is defined as the

amount of goods and services produced from each unit of labor input.

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

be positive, and your roommate's would be negative.

Both Ryan and Sachi produce ankle bracelets and rings. However, Ryan is better at producing both goods. In this case, trade could

benefit both Sachi and Ryan

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

Your professor loves her work, teaching math. She has been offered other positions in the corporate world that would increase her income by 15 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased

If the number of buyers in a market decreases, then

demand will decrease

Economists sometimes give conflicting advice because

economists have different values and scientific judgments.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between

efficiency and equality

When society gets the most it can from its scarce resources, then the outcome is called

efficient

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba

The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

Large or persistent inflation is almost always caused by

excessive growth in the quantity of money.

Soup is an inferior good if the demand

for soup falls when income rises.

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by

government actions that distort prices

Central planning refers to

government guiding economic activity. Today many countries that had this system have abandoned it.

Milk has an inelastic demand, and steak has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-2.The change in equilibrium quantity will be

greater in the steak market than in the milk market

A popular celebrity that is paid highly for her time should probably not mow her own lawn because

her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.

In the simple circular-flow diagram, the participants in the economy are

households and firms

Microeconomics is the study of

how individual households and firms make decisions

Trade between countries tends to

increase both competition and specialization

When the price of candy bars is $1.20, the quantity demanded is 490 per day. When the price falls to $1.00, the quantity demanded increases to 500. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni

is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the

market supply curve

Suppose the interest rate is measured along the vertical axis on a graph. When the interest rate changes, there will be a

movement along the curve

Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college

only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college.

The adage, "There ain't no such thing as a free lunch," means

people face tradeoffs.

Market power refers to the

power of a single person or small group to influence market prices

A demand schedule is a table that shows the relationship between

price and quantity demanded

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises.

The quantity supplied of a good is the amount that

sellers are willing and able to sell.

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction

shifts the demand curve for drugs to the left.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

When computing the opportunity cost of attending a professional football game as a spectator, you should include

the price you pay for the ticket and the value of your time.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

The primary determinant of a country's standard of living is

the country's ability to produce goods and services

When a relevant variable that is not named on either axis changes,

the curve will shift.

If something happens to alter the quantity demanded at any given price, then

the demand curve shifts

Alana decides to spend 2 hours working overtime rather than going shopping with her friends. She earns $11 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone shopping

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

the nation is not using all available resources or is using inferior technology or both.

When the quantity demanded has increased at every price, it might be because

the price of a complementary good has decreased

In the ordered pair (1, 16), 16 is the

the y-coordinate and the vertical location of the point.

Aiden and Zaria charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, six people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have six or five cars parked on their lawn does not affect their costs. From this information it follows that

they would do better charging $15 than $10.

The y-coordinate of an ordered pair specifies the

vertical location of the point

The opportunity cost of an item is

what you give up to get that item