Economics 211 Exam 1
willingness to pay is the
highest value that a consumer believes a good or service is worth
price gouging
illegal
outside ppf
impossible
A basic belief of economics is that
in general, people respond to economic incentives
progressive tax
income rises, income is taxed at a higher percentage
If Thelma's willingness to sell her homemade fudge is $4, then at which of the following prices would Thelma sell her fudge?
$4.01
which of the following prices could represent sally's willingness to pay for a pair of shoes if she bought them for $45
$55.00
if the price increases by 100% and the quantity decreases by 50%, then the elasticity of demand is
-0.5
when the price of a good decreases from $10 to $8, the quantity supplied of the good decreases from 80 units to 65 units. the price elasticity of supply is
0.93
gov intervention needed to increase efficiency; gov causes inefficiency
2 types of gov intervention
What? consumers determine; producers willing to sell Who? distribution How to combine inputs to produce?
3 questions society must answer
Heather has one employee in her sweater shop who can sew six sweaters a day. When she hires a second person, the two employees can make ten sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.
4
land, labor, capital, entrepreneurship
4 factors of production
price elasticity of demand and supply, cross price elasticity, and income elasticity
4 main types of elasticity
Which is not considered a basic economic question? A. How will the system accommodate change? B. What goods and services will be produced? C. Who will receive the goods and services? D. How will these goods and services be produced?
A
capital includes all of these except: A. dollar bills in a bank vault B. copy machines in an insurance company C. tractor loaders of a construction firm D. drilling equipment at a tool-and-die company
A
price ceiling
A legal maximum on the price at which a good can be sold
Elasticity
A measure of how much one economic variable responds to changes in another economic variable.
model
A simplified version of reality used to analyze real world situations and test hypothesis
normative
Analysis concerned with what ought to be
which statement does NOT deal with microeconomics? A. profits for some manufacturing firms fell in 2009 B. in 2009, the unemployment rate in the US rose to nearly 10% C. salaries of top executives fell in 2009 D. competitive markets promote efficiency
B
which of the following will shift the demand curve for a good? A. a change in technology used to produce the good B. an increase in the price of the good C. a decrease in the price of a complementary good D. a decrease in the price of the good
C
which of the following would cause a decrease in the supply of milk? A. an increase in the price of cookies (assuming they are complements) B. decrease in price of milk C. increase in the price of a product that producers sell instead of milk D. increase in the # of firms that produce milk
C
which question is not an example involving marginal analysis? A. should a university offer another section of a class? B. should a restaurant stay open another hour? C. should k-mart rebrand all its stores to using the sears name? D. should Boeing hire another assembly line?
C
which statement is true of microeconomics? A. the unemployment rate fell by 2% B. all businesses in the United States experienced a decrease in revenues of 5% due to the recession C. about 15% of teachers were laid off last week D. GDP increased by 6% last quarter
C
curved ppf
Changing slope so changing opportunity cost
which example represents incentives for decisions? A. tax deductions for individual retirement accounts B. investment tax credits for businesses C. tax deductions for education saving accounts D. All of these
D
complements
Eab<0
substitutes
Eab>0
inferior goods
Ey<0
luxury good
Ey>1
Consider the following statements. Which, if any, are positive statements? I. Main Street needs more coffee shops II. A new parking garage on campus will reduce parking congestion III. Last winter, the state should have spent more money on snow removal
II only
PPF
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
if, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
a decrease in quantity demanded
trade off
a sacrifice that must be made to get a certain product or experience
Marginal analysis would put an emphasis on
additional costs and benefits
Ceteris Paribus
all other things held constant
planned economy
an economic system directed by government agencies
capitalist/market economy
an economy in which buyers and sellers interact to determine which goods and services to produce, how much of them to produce, and how to distribute them
inferior income
decrease, the demand for goods decrease (wouldn't need to buy with more money)
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
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
an inferior good
regressive tax
becomes a smaller percentage as income rises
incentive
can steer people toward making certain choices
A market economy is also known as a __ 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
elastic demand
coefficients are greater than one
inelastic demand
coefficients are less than one
positive
concerned with what is
linear ppf
constant opportunity cost
ranchers can either raise cattle or sheep on their land. which would cause the supply to increase?
decrease in the price of cattle
tax burdens are higher on consumers when
demand is inelastic and supply is elastic
rational behavior
doesn't always hold because some look at low prices and think low quality
unitary elastic
elastic coefficient = 1
normal good
elasticity is positive but <1
rent control
example of price ceiling
minimum wage
example of price floor
Scarcity
faced by all individuals and societies
equity
fairness of economic benefits
flat tax
fixed percentage regardless of income
price floor
gov sets minimum price for a good
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
normal income
increase leads to a shift to the right (more money, more willingness)
if the apple MacBook and dell XPS are considered substitutes, then, other things equal, an increase in the price of the MacBook will
increase the demand for the XPS
inside ppf
inefficient
Suppose your income falls from $35,000 to $33,000 and that your quantity demanded of a good that you buy increases in response from 40 to 55. The good is said to be a(n):
inferior good
lack of competition asymmetric info externalities public goods
market failures
when quantity demanded equals quantity supplied then the
market is in equilibrium
financial capital
money
which of these is NOT an economic factor of production?
money
a country operating outside of the production possibilities frontier is
operating impossibly because a country cannot operate outside the production possibilities frontier
tax policy is partly based on the notion that
people respond to financial incentives
increase quantity demanded; decrease quantity supplied; creates market shortage
price ceiling
equilibrium in a market
quantity demanded = quantity supplied
an effective price ceiling leads to
quantity demanded exceeding quantity supplied
Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
research finds that consumption of olive oil reduces the risk of heart disease
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
production
taking inputs and creating things
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
in June, buyers of titanium expect that the price of titanium will fall un July. what happens in the titanium market in June, holding everything else constant?
the demand curve shifts to the left
physical capital
the equipment and structures used to produce goods and services
when economists refer to a market demand curve, they mean that it represents
the horizontal summation of individual demand curves
producer surplus is the difference between the
the market price and the minimum price a seller is willing to accept
the opportunity cost of buying a ticket to a major league game and then going is
the next best alternative that could have been undertaken
the price elasticity of demand measures the
the percentage change in quantity demanded divided by the percentage change in price
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
largest influence on elasticity of supply
time
opportunity costs exist because
using resources for one activity means that their use elsewhere must be given up.
Efficiency
using resources in such a way as to maximize the production of goods and services
consider the demand for olive oil. what would happen to the demand of olive oil if a study confirming its beneficial health effects is published at the same time that an investigative 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
tax incidence is defined as
who bears the burden of a federal or local tax
producer surplus
willingness to accept is below market price
consumer surplus
willingness to pay is above market price