ECON TEST 1
Combinations of apples and loaves of bread that a consumer could purchase would represent a _____ while a _____ represents the amount of apples and bread that a consumer could choose using his or her entire budget.
budget set; budget constraint
Market demand is derived by __________.
fixing the price and adding up the quantities that each buyer demands.
If sparkling wine producers expect nbsp the price of wine to decrease in the future, then the supply curve for sparkling wine would __________.
increase (shift right)
If opportunity cost were to suddenly increase, total cost would
increase and net benefit would decrease.
As a firm produces more of a good, the cost of producing each additional unit ______ This implies that the marginal cost of producing a good ______ as you make more of that good.
increases; increases
If the income elasticity of demand for a good is negative, the good is ____
inferior
A negative income elasticity would indicate an _______ good. If your income increased 10% and your demand for diamond jewelry increased 15%, diamond jewelry would be considered ______ good.
inferior; luxury
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________.
quantity demanded would exceed the quantity supplied, resulting in a shortage.
When one of the five major factors changes, causing an increase in demand, the demand curve shifts _____
right
When one of the four major factors changes, causing an increase in supply, the supply curve shifts _____
rightward
The Law of Supply states that, in most cases, the quantity supplied of a good ___________ when the price of the good rises. This means we would expect a typical supply curve to be___________.
rises; upward-sloping
excess demand
shortage
Coffee and tea are likely _____ because an increase in the price of coffee _____ the demand for tea.
substitutes; increases
If a cross-price elasticity is positive, then the two goods are ______ if the price of coffee goes up, and as such, the demand for Coffee Mate decreases, this would indicate a ______ cross-price elasticity and that the two goods are ____.
substitutes; negative; complements
A student will decide to attend class when
the marginal benefit of attending exceeds the marginal cost of attending.
A competitive market will
move towards equilibrium quantity because both producers and consumers act in their own best interest.
The federal government should spend more on AIDS research. This represents
normative analysis
The price of coffee at Starbucks is too high. This represents
normative analysis
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in ______
only the price of the good
An increase in income shifts the budget constraint _____The shift in income causes the budget constraint to increase by ________ and the slope to ______.
outward; by the same amount; remain the same
When economists develop models designed to explain the choices people make, they generally assume that
people are rational.
The supply curve represents ___________.
the minimum price sellers are willing to accept to sell an extra unit of a good.
The concept of diminishing marginal benefits states that
the more you consume of a good, your willingness to pay for an additional unit declines.
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives.
Which of the following is not one of the five major factors that shifts the demand curve when it changes?
the price of the good itself
Which of the following is not one of the four major factors that shifts the supply curve when it changes?
the price of the good itself
When faced with the option of buying one pair of boots for $60 or three sets of sandals for $20 each, Janet chose the pair of boots. The opportunity cost for the boots was:
three pairs of sandals.
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?
when you buy the fourth battery
For an individual, consumer surplus is calculated as the difference between the ______ to pay and the price actually paid for a good.
willingness
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You ______ include this observation in your report because it is _______. In this case, correlation does not equal causation most likely due to _______.
- should not , -correlation, not causation -omitted variables
When optimizing for total value, opportunity cost must be _____ total cost. Assuming _____ benefits, the lowest cost option is the optimal choice.
-added to -equal
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. In your first presentation to management, how would you describe your planned methodology to perform the analysis?
Scientific method.
How would the equilibrium price in a market be affected if there were a small increase in demand and a large increase in supply?
The equilibrium price decreases.
How do economists distinguish between models that work and those that don't?
They test their models against real-world data.
Suppose there is an increase in demand for public transportation because of an increase in the price of automobiles. Which of the following is a possible reason for this elastic demand for automobiles?
A. large share of a consumer's budget is spent on automobiles. Your answer is correct. B. There is a close availability of substitutes for automobiles.
Which of the following best describes why consumers are price takers?
Individual transactions are too small to have much impact on the market price.
Two airlines serve the route between Tampa and Houston. What will happen to one airline if the other one raises its prices?
Its demand curve will shift to the right.
Which of the following is not a step that economists use in developing a useful economic model?
Make a value judgement about the merits of the hypothesis.
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
For two goods that are complements, the cross-price elasticity of demand will be ____
Negative
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 130 and his marginal benefit from an additional slice of pizza is $ 60. If the price of a soft drink is $ 3 and the price of a slice of pizza is $ 3, is Charley maximizing his total benefits?
No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.
If a good is considered to be a luxury good, does it mean that the Law of Demand does not hold?
No, it only means that its income elasticity of demand is greater than 1.0, so the Law of Demand still holds.
Are all markets perfectly competitive?
No, there are other market types where firms have considerable power to control the price.
Does the shape of the market demand curve differ from the shape of an individual demand curve?
No, they both tend to be downward-sloping curves.
Which of the following statements about normative analysis is correct?
Normative analysis is concerned with what ought to be.
Economics, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts: _________.
Optimization, equilibrium, and empiricism.
Which of the following statements about positive analysis is correct?
Positive analysis is concerned with what is.
What happens to the equilibrium price and quantity demanded after the supply curve of solar energy panels shifts?
Price decreases and quantity demanded increases.
Which of the following examples do you provide as a normative question?
Should welfare be repealed?
Why does a demand curve with a constant slope not have a constant elasticity?
Slope is based on absolute change and elasticity is based on percentage change.
What is meant by randomization in the context of an economic experiment?
Subjects are assigned by chance, rather than by choice, to a group.
You have the option to play tennis or a round of golf (but not both). The tennis match requires you to take 2 hours off from work and the round of golf requires you to take 4 hours off from work. Playing tennis has value to you equal to $60, while golf has value to you equal to $105. Tennis courts are publicly available at no cost, but golf costs $20 per round. Suppose your wage from working is $12 per hour.
The net benefit from playing tennis is $36 and the net benefit from playing golf is $37. Therefore, you should play golf
Give an example of a pair of variables that have negative correlation.
The number of winter coats sold and the temperature outside.
Ria has an income of $1,200. She consumes two types of goods, shoes and handbags. Suppose the price of a pair of shoes is $400, and the price of a handbag is $200.
The opportunity cost of a pair of shoes is 2 handbags, and the opportunity cost of a handbag is 1/2 pair of shoes.
Suppose the quantity demanded of gold has gone up in a country and therefore, the demand curve shifts rightward. On the other hand, due to some restrictions imposed by the government on gold imports, the supply curve of gold in that country shifts leftward. In this case, which of the following statements always holds true?
The price of gold increases.
[Related to Don't Let This Happen to You] Warren Buffet is the Chief Executive Officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffet argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to low-income workers. Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?
This is a normative economic question, so the answer is a matter of the norms or values of the person answering.
A consumer's budget set refers to the collection of all possible bundles that ___________.
a consumer can purchase with her income.
Holding all else equal, if the price of a digital camera rises, then we can expect
a decrease in the quantity demanded of digital cameras.
John is a soda drinker that likes both Coke and Pepsi. He usually picks whichever has the best price or is most convenient. If Pepsi is on sale for $1 a liter and Coke is charging $1.50 for the same, John's demand curve for Coke will experience:
a left shift (inward).
All of the following would cause a shift in the supply curve for orange juice, except
a new medical discovery about the benefits of citrus
To say that economists use the scientific method means that they are using ___________.
an ongoing process to develop models of the world and then test and evaluate those models.
All of the following are elasticity measures, except:
behavioral elasticity of demand.
Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any other month. Given this information, we know that _________ is/are higher in August than in other months.
both supply and demand
In a perfectly competitive market, sellers _________ and buyers _________.
cannot charge more than the market price; cannot pay less than the market price.
A news story on declining attendance at college football games noted that schools in the central time zone had particular problems with attendance at games that started at 11 a.m. The athletic director at the University of Illinois was quoted as saying, "I'm a big fan of evening games." -Playing games in the late afternoon or evening, rather than in the morning, would
change the opportunity cost for students whose alternative activities vary throughout the day.
Given the supply and demand curves on the right, when the price of the good is $20, we say that the market is in ________. At this price, we know that the quantity supplied is _____ the quantity demanded.
competitive equilibrium; equal to
Suppose the price of pancakes increases and the demand for syrup decreases. You determine that these goods must be _____
complements
During an economic slump, such as the 2008 recession, if McDonald's faces an elastic demand curve, to maintain its sales it is likely to ____ the price of its product.
decrease
If the number of sellers of sparkling wine decreases significantly, then the supply curve for sparkling wine would __________.
decreases (shifts left)
An individual's willingness to pay measured over different quantities of the same good defines the ______ If the retail price of the good increases, the _______ will decrease, all other things constant.
demand curve; quantity demanded
A price ceiling set below the natural equilibrium price would cause the quantity ____ to exceed quantity ____
demanded; supplied
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________.
design and execute an experiment.
The concept of diminishing marginal benefits means that __________.
each additional unit consumed is worth less to you than the previous one.
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increases. If so, then this could best be characterized as an example of people responding to
economic incentives.
What do economists mean by the word "marginal"?
extra or additional
The concept of diminishing marginal benefits _______ to goods you like a lot
holds true
For economists, the "buyer's problem" refers to __________.
how consumers arrive at a choice as to what to purchase.
If Honda decided to increase the price of its Honda CRV SUV, then the demand for the Toyota Rav4 SUV would __________.
increase (shift right)
A supply curve has a _____ slope due to the Law of Supply. The Law of Supply states that supplies _____ as price increases.
positive; increase
Which change causes a movement along the demand curve?
price of the good itself
Economists refer to the process of summing the individual supply curves to find the market supply curve as aggregation. Aggregation consists of fixing the _____ and adding up the _____ by each firm.
price of the good; quantity supplied
The demand curve graphs a consumers responsiveness to a change in ______. The points on the curve can be verified through ______.
price; marginal analysis
The competitive equilibrium price equates
quantity supplied to quantity demanded.
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $6,000 and the marginal cost is $9,000 per bed, then the corporation _________ offer additional beds
should not
The market supply curve is the _____ of all the supply curves of potential producers and would be graphed to the _____ of the individual curves.
sum; right
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then
supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.
excess supply
surplus
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost.
Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas.
Debbie's method is a controlled experiment and Troy's method is a natural experiment. Group A is the treatment group and Group B is the control group.
If people expect the price of SUVs to decrease in the future, then the demand for the Toyota Rav4 SUV would __________.
decrease (shift left)
The three principles of economics include optimization, equilibrium, and empiricism. optimization describes a situation where ____ Equilibrium describes a situation where ____ Empiricism describes describes a situation where ____
-Optimization: people weigh costs and benefits when making a decision -Equilibrium: no one would benefit from changing his or her behavior -Empiricism: economists use data to analyze what is happening in the world
An experiment would be conducted to determine _____ among the chosen variables. Subjects should be assigned _______ to either a test or control group in order to get the most unbiased comparison.
-causation -randomly
Nalalya consumes two goods, food and clothing. The price of food is $9, the price of clothing is $14, and her income is $ 5 comma 000. Nalalya always spends 40 percent of her income on food regardless of the price of food, the price of clothing, or her income. What is her price elasticity of demand for food? What is her cross-price elasticity of demand for food with respect to the price of clothing? What is her income elasticity of demand for food?
-exactly 1.0 -exactly zero -exactly 1.0
You should collect a ______ amount of data to create ______ to test the ______ indicated by the economic model
-large -empirical evidence -hypotheses
A demand curve has a ______ slope due to the Law of Demand. The Law of Demand is based off of a consumer's willingness to pay ______ as marginal units are consumed.
-negative -less
You say that ____ questions ask what is or will be and ____ questions ask what ought be
-positive -normative
A study was conducted examining diabetes rates by ethnicity. It was determined that Hispanics had the highest rate of diabetes. A conclusion might be made that people of Hispanic origin are the most inclined to be diabetic. However, that _______ correlation could be the result of _______ , given that other factors, such as diet, that were not considered.
-positive -omitted variables
_____ is concerned with what is and ___ analysis is concerned with what ought to be. Economics is about ____ which measures the costs and benefits of different courses of action.
-positive analysis -normative analysis -positive analysis
Aggregation consists of fixing the _________ and adding up the _________ by each buyer.
-price of the good -quantity demanded
The Law of Demand states that as the price of a good increases, ceteris paribus, the _____ decreases. This can be shown graphically with _____ demand curve or numerically in a table using a _____ The relationship that exists between these two variables can be described as _____
-quantity demanded -downward sloping -demand schedule -negatively related
The Law of Supply states that as the price of a good increases, ceteris paribus, the ______ of that good increases. This can be shown graphically with ______ supply curve or numerically in a table using a ______ The relationship that exists between these two variables can be described as _____
-quantity supplied -an upward-sloping -supply schedule -positively related
Suppose you are on a date with an economics major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question are:
1. It is important to individuals or society 2. It can be answered
How does a consumer's budget set differ from his budget constraint?
A budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income.
Which of the following statements are true? (Check all that apply.) A. A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied. Your answer is correct.B. A government price control will always cause the quantity demanded to exceed the quantity supplied. C. A government price control can be used to bring markets into equilibrium. D. Equilibrium is attained when prices are allowed to respond to market pressure.
A. binding price ceiling will always cause the quantity demanded to exceed the quantity supplied, D. Equilibrium is attained when prices are allowed to respond to market pressure.
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
All variables that can affect the demand for the good are held constant.
What does it mean to say that we are running out of "cheap oil"?
That oil reserves are becoming more expensive to find and extract over time.
How would the equilibrium price in a market be affected if there were a small decrease in demand and a large decrease in supply?
The equilibrium price increases.
Due to changes in the government's foreign policy, there is a 15% increase in the prices of laptops imported from other countries while there is a 5% decrease in the prices of similar, domestically produced laptops. Which of the following statements is not true about the consumer's choice? Given the prices and budget, which of the following commodities would any rational consumer purchase?
Consumers will prefer the domestically produced laptops over the imported laptops. The commodity that best suits the consumer's tastes and preferences and maximizes satisfaction.
Which of the following would not be considered a market by an economist? A.An online auction site such as ebay B.A dating website C.Your corner gas station D.All of the above are examples of a market.
D. All are examples
The price elasticity of demand for a good is likely to be less elastic __________. A. the lower the budget share spent on the good. B. the shorter the available time during which consumers can adjust. C. the smaller the number of close substitutes for the good. D. all of the above.
D. all of the above
What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?
Economic models.
True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.
False
Which of the following do you provide as a positive question?
How much is the national debt?
This chapter discussed natural and randomized experiments. Which of the following is not a characteristic of a natural experiment?
It is an inferior approach to a randomized method.
Which would be the correct sequence of events in the speedboat industry if waterway access was improved and, at the same time, a lighter polymer became available that increased production efficiency?
Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase.
How would an increase in demand affect the equilibrium price in a market?
The equilibrium price increases.
What does this imply for the price of oil in the future?
The supply of oil will decrease, which will lead to higher prices in the future.
Suppose you come across a study that has discovered a link between reading books and life expectancy: People who read more books live longer. Which of the following correlations might exist between reading books and life expectancy even though there is no direct causal link between them?
Wealthy individuals who can afford to spend more time reading can also afford better medical care.
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is ___________.
a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data.
Suppose Natasha currently makes $57,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $472,000 and costs for the necessary land, labor, and capital of $438,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,200,000 per year as compared to revenues of $3,271,000 per year. a. What would she make in profits if she opens her organic soap company? b. What would she make in profits if she opens her Internet business? c. Should she quit her current job to become an entrepreneur? d. If she does quit her job, which opportunity should she pursue?
a. $34,000 b. $71,000 c. Yes d. The internet service provider company
a.) Supply increases and demand is constant. Price: Quantity: b.) Supply decreases and demand is constant. Price: Quantity: c.) Supply is constant and demand increases. Price: Quantity: d.) Supply is constant and demand decreases. Price: Quantity e.) Supply increases and demand increases. Price: Quantity: f.) Supply increases and demand decreases. Price: Quantity g) Supply decreases and demand increases. Price: Quantity: h.) Supply decreases and demand decreases. Price: Quantity:
a. decreases, increases b. increases, decreases c. increases, increases d. decreases, decreases e. indeterminate, increases f. decreases, indeterminate g. increases, indeterminate h. indeterminate. decreases
What effect will each of the following have on the supply of auto tires? (Keeping all else constant) a. A technological advance in the methods of producing tires: b. A decline in the number of firms in the tire industry: c. An increase in the prices of rubber used in the production of tires: d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): f. The levying of a per-unit tax on each auto tire sold: g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:
a. increase b. decrease c. decrease d. increase e. increase f. decrease g. increase
What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable: b. The price of large automobiles rises (with the price of small autos remaining the same): c. Income declines and small autos are an inferior good: d. Consumers anticipate that the price of small autos will greatly come down in the near future: e. The price of gasoline substantially drops:
a. increase b. increase c. increase d. decrease e. cannot be determined
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________.
lose all or almost all of its customers.
For a consumer with a given level of income, the combinations of goods for the budget constraint will be _____ than for the budget set.
lower
When comparing the equilibriums in the lobster market for August and November, the equilibrium quantity is ______ in November than in August, while the equilibrium price is ______.
lower; higher, lower, or unchanged
Willingness to accept is the _____ price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the _____ cost of production.
lowest; marginal
What is the golden rule of decision-making in economics (and all of life)?
marginal benefit = marginal cost
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
A group of economic agents who are trading a good or service would define a _____. Price takers exist through _____ markets.
market, competitive
An increase in a consumer's income causes her budget set to encompass ____ bundles
more
A budget constraint for t-shirts and movie tickets is shown in the graph. If the price of either the t-shirt or the movie ticket decreases, the budget constraint:
pivots outward and the slope changes.
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents
positive analysis
Rising paper prices will increase textbook prices. This represents
positive analysis
A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___________.
the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off.
Economists use models
to answer questions and analyze issues.
Economic data is used
to test models.
When graphing the new total market supply and demand curves, these curves will be _________ the individual countries' demand curves, since these curves are derived by _________.
to the right of; summing quantities at a given price.
Which of the following statements would not be considered a positive statement?
tuition at 4 year universities is too high and should be lowered
Do all consumers in a competitive market enjoy the same amount of consumer surplus?
No, since considerable variation exists among consumers in terms of tastes and incomes.
