Final Cont.

T or F Historical episodes allow economists to illustrate and evaluate economic theories of the present.

True

T or F If consumers believe the price of iPhones will decrease in the future, this will cause the demand for iPhones to decrease now.

True

T or F In a centrally planned economy, the government decides how economic resources will be allocated.

True

T or F In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

True

T or F One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources.

True

T or F Points on the production possibilities frontier represent efficient levels of production.

True

Which of these statements best represents the law of demand?

When the price of a good decreases, buyers purchase more of the good.

Holding everything else constant, an increase in the price of MP3 players will result in

a decrease in the quantity of MP3 players demanded.

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?

consume a combination of goods that lies outside its own production possibilities frontier.

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus.

If the demand for a product decreases, then we would expect

equilibrium price and equilibrium quantity to both decrease.

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

externalities.

The basic principles of economics suggest that

government should become involved in markets when trade between countries is involved.

Economic surplus is maximized in a competitive market when

marginal benefit equals marginal cost.

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure.

Which of the following phrases best captures the notion of efficiency?

minimum waste

To affect the market outcome, a price ceiling

must be set below the equilibrium price.

Guns and butter are used to represent the classic societal tradeoff between spending on

national defense and consumer goods

The ability to exercise control over one's own resources within the confines of the law refers to

one's property rights.

For economists, statements about the world are of two types:

positive statements and normative statements.

Which of the following is not a rationing mechanism used by landlords in cities with rent control?

price

Buyers and sellers who have no influence on market price are referred to as

price takers.

Economics deals primarily with the concept of

scarcity.

Government policies can change the costs and benefits that people face. Those policies have the potential to

a. alter people's behavior. b. alter people's decisions at the margin. c. produce results that policymakers did not intend. d. All of the above are correct.

Opponents of the minimum wage point out that the minimum wage

a. encourages teenagers to drop out of school. b. prevents some workers from getting needed on-the-job training. c. contributes to the problem of unemployment. d. All of the above are correct.

In the circular-flow diagram, firms produce

a. goods and services using factors of production. b. output using inputs. Both (a) and (b) are correct.

In a market economy, supply and demand are important because they

a. play a critical role in the allocation of the economy's scarce resources. b. c. d. determine how much of each good gets produced. can be used to predict the impact on the economy of various events and policies. All of the above are correct.

If a surplus exists in a market, then we know that the actual price is

above the equilibrium price and quantity supplied is greater than quantity demanded.

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service

additional

When we move along a given demand curve,

all nonprice determinants of demand are held constant.

If you can produce more of something than others with the same resources, you have

an absolute advantage.

A minimum wage that is set above a market's equilibrium wage will result in

an excess supply of labor, that is, unemployment

If a decrease in income increases the demand for a good, then the good is

an inferior good.

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

an inferior good.

The scientific method is applicable to studying

both natural sciences and social sciences.

Policymakers use taxes

both to raise revenue for public purposes and to influence market outcomes.

The production possibilities frontier is a graph that shows the various combinations of output that an economy

can produce.

To say that a price ceiling is binding is to say that the price ceiling

causes quantity demanded to exceed quantity supplied.

A tax on sellers will

shift the supply curve upwards by the amount of the tax.

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

some factors of production are not equally suited to producing both goods or services.

When a binding price floor is imposed on a market to benefit sellers,

some sellers benefit and some sellers are harmed.

The income effect of a price change refers to the impact of a change in

the price of a good on a consumer's purchasing power.

If the price of a good is low,

the quantity supplied of the good could be zero.

If, in the market for oranges, the supply has increased then

the supply curve for oranges has shifted to the right.

When an economy is operating inside its production possibilities frontier, we know that

there are unused resources or inefficiencies in the economy.

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

________ is maximized in a competitive market when marginal benefit equals marginal cost.

Economic surplus

T or F A price ceiling is a legal minimum on the price at which a good or service can be sold.

False

T or F A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.

False

T or F A reduction in an input price will cause a change in quantity supplied, but not a change in supply.

False

T or F All goods and services are sold in perfectly competitive markets.

False

T or F An increase in population shifts the production possibility frontier inwards over time.

False

T or F An increase in the number of firms in a market will cause the quantity of a good supplied to increase.

False

T or F If the demand for a good falls when income falls, then the good is called an inferior good.

False

T or F In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents the flow of factors of production.

False

T or F Shortage means the same thing as scarcity.

False

T or F The idea underlying Adam Smith's invisible hand is that people tend to behave in ways that go unnoticed in society.

False

T or F When free markets ration goods with prices, it is both efficient and impersonal.

False

T or F When voluntary exchange takes place, only one party gains from the exchange.

False

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve

Published in 1776, ________ was written by Adam Smith.

An Inquiry into the Nature and Causes of the Wealth of Nations

When calculating the cost of college, which of the following should you probably not include?

The cost of rent for your off-campus apartment.

Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are

substitute goods

A ________ curve shows the marginal cost of producing one more unit of a good or service.

supply

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.