Economics Midterm

demand

the amounts buyers want to buy at different possible prices

Supply

the amounts sellers want to sell at different possible prices

Market-clearing price

the price that balances the amount buyers want to buy with the amount sellers want to sell

competition

rivalry among buyers or among sellers

What are three causes for a change in supply?

1. Expectations 2. Changes in sellers 3. Change in marginal cost

Rationingv

Allocating something scarce among people who want more than is available

Describe THREE main functions prices serve in a market system.

In a free market economy, prices are used to distribute goods and resources throughout the economy. Prices provide a standard of measure of value throughout the world. Prices act as a signal that tells producers and consumers how to adjust.

Why is the following statement incorrect? Supply equals demand at a market price

It would be correct if the statement said "supply equals demand at equilibrium or market-clearing price", but not just market price

Can there be a surplus of scarce products? Why or why not?

Surplus refers to situations in which the price of a good is above equilibrium and as a result there is more of that good being supplied than being demanded. Since everything is scarce and some items have a surplus, we can conclude that, in some situations, scarcity and surplus can exist at the same time.

In Country A: - the government owns most of the land - production decisions are made according to need - prices are set by regulatory agencies The information above most likely describes an economy that operates as a. a command economy b. a mixed economy c. a laissez-faire economy d. a market economy

a. a command economy

The price of milk is regulated by the government. The government supports the price of milk far above its market-clearing price for several years. If these conditions were part of Country A's economy, which of these would be the most likely result? a. surplus in the supply of milk b. a shortage in the demand for milk c. an increase in the demand for milk d. a decrease in the production of milk

a. a surplus in the supply of milk

If the government imposed a price ceiling on gasoline, the most likely result would be a. an increase in quantity demanded b. a decrease in quantity demanded c. an increase in production costs d. a decrease in consumption

a. an increase in quantity demanded

Which of the following contain supply shifters? a. change in the cost of resources, change in the number of producers, change in the demand of related goods b. change in the marginal cost of production, change in the tax rate of related products c. decrease in the number of consumers, change in the number of producers d. change in subsidies and taxes, technological advancements in source material

a. change in the cost of resources, change in the number of producers, change in the demand of related goods

In economics, a shortage of a product occurs when a. demand exceeds the ability of supply b. the product's market-clearing price reduces overall demand c. the people who buy the product consumer more than they need d. the businesses producing the product become less efficient

a. demand exceeds the ability of supply

People make voluntary exchanges of goods and services in a free market MAINLY because they a. expect to be better off as a result of exchange b. anticipate a time when exchanges will be more costly c. follow laws of economics that require frequent exchanges d. view exchanges as a good way to compete with other parties

a. expect to be better off as a result of an exchange

Compared to market economies, command and traditional economy systems generally have a. fewer privately owned businesses b. a wider variety of choices for consumers c. fewer government regulations and rules to follow d. higher standard of living among the general population

a. fewer privately owned businesses

Which of these events is MOST LIKELY to occur in a command economy? a. government experts set prices for agricultural goods sold to the public b. manufacturers reduce prices on farming equipment to attract new business c. car manufacturers compete for customers by improving vehicle quality d. lumber prices rise as a result of increased demand among customers

a. government experts set prices for agricultural goods sold to the public

Which of the following are economic incentives that motivate businesses to expand production? a. increased profits b. reduced sales c. higher costs d. all of the above

a. increased profits

Which of these is the most likely effect of an increase in the cost of production? a. lower levels of production b. longer production schedules c. frequent production surpluses d. rising demand for production workers

a. lower levels of production

In which of these economic systems will product shortages or surpluses usually result in immediate and direct price changes? a. market economy b. traditional economy c. command economy d. none of the above

a. market economy

A product is in high demand. The price of the product rises by 15%. The most likely result of this event would be an increase in _________. a. supplier output b. natural resources c. consumer demand d. government intervention

a. supplier output

Product X is in high demand. The price of Product X rises by 15%. The most likely result of these events would be an increase in a. supplier output b. natural resources c. consumer demand d. government intervention

a. supplier output

Entrepreneurs typically accept the risks associated with starting a new business in exchange for a. the possibility of greater profits b. the ability to work longer hours c. the possibility of defaulting on loans d. none of the aobve

a. the possibility of greater profits

In economics, a shortage of a product occurs when a. the product's price falls below its market-clearing level b. the product's market-clearing level reduces overall demand c. the people who buy the product consumer more than they need d. the businesses producing the product become less efficient

a. the product's price falls below its market-clearing level

Which of these BEST explains why entrepreneurs are important to the economy as a whole? a. they create new jobs and generate innovative ideas within the economy b. they maintain the status quo in the economy by minimizing their profits c. they following the economy's most common business practices and traditions d. they create ways for individuals in the economy to become wealthy without risk

a. they create new jobs and generate innovative ideas within their economy

- all community members are fishers or famers - all children grow up to do the same work as their parents - all family members work for the benefit of the community Which expense is most likely a fixed cost? a. wages for workers b. monthly shipping charges c. rent for a company's warehouse d. raw materials used in production

a. wages for workers

By definition, which of these is created whenever buyers and sellers exchange goods or services? a. a surplus b. a market c. a scarcity d. a substitute

b. a market

When something is produced, there is always a. a buyer b. an opportunity cost c. an elastic supply d. a profit

b. an opportunity cost

Which of the following would probably provide the GREATEST motivation for factory workers to increase their output? a. lower prices for the factory's goods b. bonus pay based on the factory's production c. fewer employee benefit programs at the factory d. increased sales taxes on products made at the factory

b. bonus pay based on the factory's production

Profit is one of the main incentives for nearly all a. charities b. businesses c. educational institutions d. religious organizations

b. businesses

During one month, the price of a product rose 20%. This most likely occurred because of an increase in a. producer outputs b. consumer demand c. short-term supply d. worker efficiency

b. consumer demand

If bad weather destroys much of the wheat crop, then a. the price effect will cause growers to sell less wheat at lower prices b. growers will offer less wheat at each and every price c. both of the above d. none of the above

b. growers will offer less wheat at each and every price

In a market economy, goods are most often produced as a result of a. decisions made by a central authority b. interaction between buyers and sellers c. equal sharing based on individual needs d. laws adopted by a majority rule of citizens

b. interaction between buyers and sellers

Which of the following statements about competition in a market economy is TRUE? a. it changes the demand curve b. it affects supply and demand schedules c. it regulates the public's needs and wants d. it reduces efficiency in an economic system

b. it affects supply and demand schedules

People are more likely to buy new houses in an economic environment that includes a. fewer homes available for purchase b. lower interest rates for home loans c. increasing costs for home building supplies d. higher prices for small homes and condos

b. lower interest rates for home loans

People who create goods and services are most commonly called a. consumers b. producers c. customers d. end-users

b. producers

Which of these statements best explains why the price of a particular toy might FALL just before December 25th? a. buyers caused a shortage of the toy b. sellers produced a surplus of the toy c. buyers preferred the toy to others on the market d. sellers failed to produce enough toys to meet demand

b. sellers produced a surplus of the toy

Which of these responses would most accurately complete the sentence above? a. surpluses, taxation b. shortages, surpluses c. efficiency, elasticity d. incentives, disincentives

b. shortages, surpluses

Price ceilings can create __________, but price floors can result in___________. Which of these responses would most accurately complete the sentence above? a. surpluses; taxation b. shortages; surpluses c. efficiency; elasticity d. incentives; disincentives

b. shortages; surpluses

Company A can produce a product at a constant marginal cost. This means that a. the company's total cost does not rise as it increases production b. the company's total cost rises by the same amount every time it increases production by one unit c. the company can earn a profit no matter what price it charges d. none of the above

b. the company's total cost rises by the same amount every time it increases production by one unit

The purchase of a new product in a market economy is an act of a. predatory pricing b. voluntary exchange c. government regulation d. monopolistic competition

b. voluntary exchange

change in demand

buyers want to buy more than before at every price

If the profit opportunity for a given product increases, the most likely result would be a. an increase in aggregate demand b. an increase in the cost of production c. an increase in the number of producers d. an increase in the number of consumers

c. an increase in the number of producers

Supply is best defined as the measure of how much producers are willing and able to sell a. above the market-clearing price b. at any one price in a given period of time c. at different prices in a given period of time d. according to their resources and profit motives

c. at different prices in a given period of time

If the price of beef rises and remains at the higher level, then over time the supply of beef a. becomes more inelastic because producers get used to the higher price b. shifts to the left c. becomes more elastic because ranchers have more time to bring resources into cattle production d. remains unchanged

c. becomes more elastic because ranchers have more time to bring resources into cattle production

Which of these BEST describes the economic system practiced throughout most of the history of the United States? a. fascism b. socialism c. capitalism d. communism

c. capitalism

In the United States, some services such as the postal system are regulated and/or operated with help from the government because a. demand in the free market would not support production b. state and local legislators require additional forms of revenue c. certain services are considered equally necessary for all people d. supply is limited and must be allocated to those with the most resources

c. certain services are considered equally necessary for all people

If the price of a product falls, producers are likely to a. continue production at current levels b. stop production to create temporary scarcity c. decrease production to lower marginal costs d. increase production to make up for lost profits

c. decrease production to lower marginal costs

An economist would most likely agree that a key advantage of money as a medium of transactions is that it a. leads to economic recession b. makes production more efficient c. decreases the cost of the exchange d. decreases the need for specialization

c. decreases the cost of the exchange

Which of the following causes is probably most responsible for the effects listed above? a. computer manufacturers fail to compete for consumers' business. b. computer manufacturers seek ways to increase production costs c. demand for computer products creates an incentive for efficient production d. none of the above

c. demand for computer products creates an incentive for efficient production

Economists consider using money preferable to using barter system because it makes exchanges a. less costly b. less productive c. more profitable d. more restrictive

c. more profitable

Compared to a pure market economy, one benefit of a command economy is that a. producers lack the incentives to improve production methods b. consumers usually have more products and services to choose from c. people have more job security and are provided with more public services d. government officials often produce goods more efficiently than private companies

c. people have more job security and are provided with more public services

Which of the following is the term for a price imposed by the government that controls how high price can go? a. price index b. price signcal c. price ceiling d. price floor

c. price ceiling

When an industry in the US economy is DEREGULATED, this means the industry becomes a. part of a command economic system b. part of the government's capital resources c. subject to the forces of supply and demand d. subject to price controls and subsidization

c. subject to the forces of supply and demand

Which of these effects are most likely to reduce consumer spending in the US economy? a. low inflation rates b. low unemployment rates c. substantial tax increases d. subsidized goods and services

c. substantial tax increases

There are three major manufacturers of cell phones. Company A made 1 million phones in a year. Company B made 2 million phones in a year. Company C made 3 million phones in a year. The 6 million phones produced by the three companies are referred to as _____________. a. quantity supplied b. quantity demanded c. supply d. incentive

c. supply

Consumers are LEAST likely to be defined as people that a. want goods and services b. need goods and services c. supply goods and services d. choose goods and services

c. supply goods and services

In a pure market economy, prices are generally determined by a. the people who produce and sell goods b. the government officials who set prices c. the exchanges between buyers and sellers d. the costs of transporting goods to consumers

c. the exchanges between buyers and sellers

in a pure market economy, prices are generally determined by a. the people who produce and sell goods b. the government officials who set prices b. the exchanges between buyers and sellers d. the costs of transporting goods to consumer

c. the exchanges between buyers and sellers

Which of the following would NOT shift the supply line of car-washing services to the right? a. businesses introduce more efficient washing and drying equipment b. workers at car washes become able to wash more cars per hour than before c. the price of water goes up d. the number of car-washing businesses increases

c. the price of water goes up

When demand and supply for a product are equal, which of the following is most likely true? a. the product is scarce b. the product's price will fall c. the product's market clears d. all of teh above

c. the product's market clears

Producers usually sell more at higher prices than at lower prices because a. their marginal costs usually drop as production increases b. they don't have to worry about marginal production costs c. their marginal costs usually rise as they increase production d. they want the excess profit that comes from producing additional quantities at lower costs

c. their marginal costs usually rise as they increase production

Which of the following is a key characteristic of all economic incentives? a. they usually result in lower profits b. they require customers to give up benefits c. they can persuade people to make decisions d. they will have little impact on consumer behavior

c. they can persuade people to make decisions

Which of the following provides the best example of people using the barter system? a- a leather repair shop accepts a personal check from a customer b. a sporting goods store issues a cash refund to an unsatisfied customer c. a coffee shop owner uses a credit card to purchase new chairs and tables d. a grocery store owner trades a case of pineapples for two cases of oranges

d. a grocery store owner trades a case of pineapples for two cases of oranges

The United States economy is best described as a. a command economy b. a traditional economy c. a pure market economy without government regulation d. a mixed economy with market and government elements

d. a mixed economy with market and government elements

Market-clearing or equilibrium prices are important in a free enterprise economy because they a. help to ration available goods and services b. provide incentives for people to produce goods and services c. provide information about producer costs and consumer wants d. all of the above

d. all of the above

Which statement explains why market economies are used extensively throughout the world? a. they allow individual producers and consumers to make decisions about how to allocate scarce resources b. they encourage competition between buyers and sellers tending to produce higher quality goods at lower prices c. they tend to place more economic power in the hands of citizens rather than under government control d. all of the above

d. all of the above

Which of the following will most likely result in a decrease in a product's market-clearing or equilibrium price? a. in crease in supply, but no change in demand b. an increase in demand, but no change in supply c. an equal increase in both supply and demand d. an equal decrease in both supply and demand

d. an equal decrease in both supply and demand

Responses to incentives are predictable because A. people generally pursue their own interests B. producers and consumers have the same needs C. most governments use the same system of rewards D. businesses generally operate to serve the public interest

d. businesses generally operate to serve the public interest

Which of these would probably NOT be considered a monetary incentive to buy a product? a. price reductions b. rebate programs c. volume discounts d. celebrity endorsements

d. celebrity endorsements

An economist would agree that demand and supply schedules are PRIMARILY based on a. government intervention in setting prices b. methods of improving business efficiency c. relative elasticity of most consumer needs and wants d. decisions made by consumers and producers in a market

d. decisions made by consumers and producers in a market

An economist would most likely defined fixed costs as a. extra charges incurred when workers demand higher wages b. extra charges incurred when a business ships additional goods c. expenses that increase or decrease with the rate of production d. expenses that remain unchanged regardless of the rate of production

d. expenses that remain unchanged regardless of the rate of production

If the prices double this year for the cost of wheat, rice, barley, and horses, which of the four products would be the most inelastic? a. wheat b. rice c. barley d. horses

d. horses

- John has a part-time job as an auto repair technician - John would like to have a new car Which of the following best describes how money's role as a store of value can help resolve the situation above? a. john can offer his repair services in exchange for a car b. john can borrow a car and provide labor as payment for using it c. john can leave his job and donate his services to local car repair shops d. john can save part of his wages over time and eventually purchase a car

d. john can save part of his wages over time and eventually purchase a car

In a market economy, which of the following would be the most likely result of the events listed above? a. a nationwide surplus of soybeans b. a lower average price for soybeans c. an increase in soybean consumption d. none of the above

d. none of the above

A supply line shows that, in a market economy, consumers get more of a product by a. paying lower prices until producers give them more of what they want b. having government force businesses to produce more c. writing letters to convince businesses to increase production d. offering producers more money in exchange for the product

d. offering producers more money in exchange for the product

A supply line shows that, in a market economy, consumers get more of a product by _________________. a. paying lower prices until producers give them more of what they want b. having government force businesses to produce more c. writing letters to convince businesses to increase production d. offering producers more money in exchange for the product

d. offering producers more money in exchange for the product

Entrepreneurship is considered to be a separate factor of production because it provides a. land necessary to begin production b. capital necessary to begin productionc c. the natural resources needed to bring about production d. organizational ability needed to bring about production

d. organizational ability needed to bring about production

The use of government price controls is most likely to create a. reduced demand b. greater supply c. economies of scale d. problems of allocation

d. problems of allocation

An economist would probably agree that prices set by supply and demand are primarily measures of the a. effects of government subsidies b. level of regulation in the economy c. amount of volatility in the market d. relative scarcity of goods or services

d. relative scarcity of goods or services

If a city government sets price controls on how much rent apartments can charge, who immediately benefits? a. landlords b. senior citizens c. the city d. renters

d. renters

Demand for a product will normally change when there is a change in any one of the following EXCEPT a. the availability of substitute goods b. the price of complementary products c. the level of consumers' incomes d. the elasticity of product supply

d. the elasticity of product supply

If a business wants to maximize profits, it attempts to produce a quantity of goods which creates a. the lowest total costs b. the highest possible revenues c. the most equality between costs and revenues d. the greatest positive difference between costs and revenues

d. the greatest positive difference between costs and revenues

In economics, the term supply refers to a. the quantity of a good or service a producer must sell to earn a profit b. the quantity of a product that people want to buy c. the quantity of an item offered for sale at a particular price d. the quantities of a good or service a producer is willing and able to sell at different possible prices

d. the quantities of a good or service a producer is willing and able to sell at different possible prices

In economics, the term supply refers to _________ a. the quantity of a good or service a producer must sell to earn a profit b. the quantity of a product that people want to buy c. the quantity of an item offered for sale at a particular price d. the quantities of a good or service a producer is willing and able to sell at different possible prices

d. the quantities of a good or service a producer is willing and able to sell at different possible prices

The market equilibrium price is the price at which _____________ a. surpluses depress the number of goods supplied b. shortages and surpluses will have no effect on the market c. the government will not intervene in the market d. the quantity demanded is the same as the quantity supplied

d. the quantity demanded is the same as the quantity supplied

Which of the following statements is true of a pure market economy? a. consumers have little effect on demand b. sellers cooperate to agree on an amount to supply c. the government determines what will be produced d. there is no central planning agency that determines prices

d. there is no central planning agency that determines prices

- all community members are fishers or famers - all children grow up to do the same work as their parents - all family members work for the benefit of the community The ideas above most likely describe aspects of a a. mixed economy b. market economy c. command economy d. traditional economy

d. traditional economy

In a market economy, prices are affected by all of the following EXCEPT a. scarcity b. supply c. demand d. welfare

d. welfare

shortage

how much more of a product buyers want to buy than sellers want to sell at a given price

surplus

how much more of a product sellers want to sell than buyers want to buy at a given price

information

market prices provide this for producers and consumers

incentive to produce

reasons for producing goods and services