Micro Econ_Quiz 3_Some Answers

Shortage

When the quantity demanded is greater than the quantity supplied, there is a shortage in the market

Surplus

When the quantity supplied is greater than the quantity demanded there is a surplus in the market

Change in Quantity

refers to a movement along the demand curve as a result of a change in the products price

Change in quantity supplied

refers to a movement along the supply curve as a result of a change in the products change in the products price.

Substitutes in Production

Alternative products that a firm could produce are called substitutes of production

Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier?

(200 cashews, 40,000 peanuts) and (150 cashews, 30,000 peanuts) (300 cashews, 60,000 peanut) and (200 cashews, 50,000 peanuts) (200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts) (300 cashews, 60,000 peanuts) and (200 cashews, 80,000 peanuts) ans c

Ceteris Paribus Condition

(all else equal) The requirement that when analyzing the relationship between two variables such as price and quantity demanded other variables must be held constant

The figure shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. What is the opportunity cost of producing 1 bolt of cotton in Pakistan?

0.625 pounds of cashews. 0.375 pounds of cashews. 150 pounds of cashews. 240 pounds of cashews. ans a

The figure shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. What is the opportunity cost of producing 1 pound cashews in Indonesia? (round to two decimal places)

1.6 bolts of cotton. 320 bolts of cotton. 2.67 bolts of cotton. 0.63 pounds of cashews. ans c

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?

25 silk leaves. 2.5 silk leaves. 10 silk leaves. 55 silk leaves. ans a

1. George buys a BMW X5 SUV; this takes place in the product market. 2. BMW increases employment at its Spartanburg plant; this takes place in the product market. 3. George works 20 hours per week at McDonald's; this takes place in the factor market. 4. The households supply factors of production and the firms demand the factors of production. 5. George sells land he owns to McDonald's so it can build a new restaurant. This takes place in the product market.

5. George sells land he owns to McDonald's so it can build a new restaurant. This takes place in the product market. All statements are false. Statements 1, 3, and 4 are True and statements 2 and 5 are False. All statements are true. Statements 1, 3, 4, and 5 are True and statement 2 is False. ans a

Demand Curve

A curve that shows the relationship between the price of a product and the quantity of the product demanded

Supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied

Inferior Good

A good for which the demand increases as income falls and decreases as income rises

Normal Good

A good for which the demand increases as income rises and decreases as income falls

Competitive Market Equilibrium

A market equilibrium with many buyers and many sellers, At a competitive market equilibrium, all consumers willing to pay the market price will be able to buy as much of the product as they want, and all firms willing to accept the market price will be able to sell as much of the product as they want.

Perfectly competitive market

A market that meets the conditions of many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market

Technological Change

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

Market Equilibrium

A situation in which quantity demanded equals quantity supplied, Both Supply and demand

Demand Schedule

A table showing the relationship between the price of a product and the quantity of the product demanded

Supply Schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced A) a decrease in supply. B) an increase in supply. C) an increase in the quantity supplied. D) a decrease in the quantity supplied.

A) a decrease in supply.

The law of demand implies, holding everything else constant, that A) as the price of bagels increases, the quantity of bagels demanded will decrease. B) as the price of bagels increases, the demand for bagels will decrease. C) as the price of bagels increases, the quantity of bagels demanded will increase. D) as the price of bagels increases, the demand for bagels will increase.

A) as the price of bagels increases, the quantity of bagels demanded will decrease.

If a demand curve shifts to the right, then A) demand has increased. B) quantity demanded has increased. C) demand has decreased D) quantity demanded has decreased.

A) demand has increased.

A supply schedule A) is a table that shows the relationship between the price of a product and the quantity of the product supplied. B) is a curve that shows the relationship between the price of a product and the quantity of the product supplied. C) is the relationship between the supply of a good and the cost of producing the good. D) is a table that shows the relationship between the price of a product and the quantity of the product that producers and consumers are willing to exchange.

A) is a table that shows the relationship between the price of a product and the quantity of the product supplied.

The demand by all the consumers of a given good or service is the ________ for the good or service. A) market demand B) quantity demanded C) law of demand D) scheduled demand

A) market demand

If a firm has an incentive to increase supply now and decrease supply in the future, the firm expects that the A) price of its product will be lower in the future than it is today. B) price of its product will be higher in the future than it is today. C) price of inputs will be lower in the future than they are today. D) demand for the product will be lower in the future than it is today.

A) price of its product will be lower in the future than it is today.

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone A) strawberries and whipped cream are complements. B) strawberries and whipped cream and substitutes. C) strawberries and whipped cream are normal goods. D) strawberries are a normal good and whipped cream is an inferior good.

A) strawberries and whipped cream are complements.

A change in all of the following variables will change the market demand for a product except A) the price of the product. B) population and demographics. C) income. D) tastes.

A) the price of the product.

If, in the market for oranges, the supply has increased then A) the supply curve for oranges has shifted to the right. B) the supply curve for oranges has shifted to the left. C) there has been a movement upwards along the supply curve for oranges. D) there has been a movement downwards along the supply curve for oranges.

A) the supply curve for oranges has shifted to the right.

Normative

An opinion, is that right, too high

What is the difference between an "increase in demand" and an "increase in quantity demanded"? A) There is no difference between the two terms; they both refer to a shift of the demand curve. B) 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. C) There is no difference between the two terms; they both refer to a movement downward along a given demand curve. D) An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve.

B) 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.

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as A) a decrease in demand. B) a decrease in quantity demanded. C) a change in consumer income. D) a decrease in consumers' taste for chocolate.

B) a decrease in quantity demanded.

If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things equal, an increase in the price of the iPhone will A) decrease the demand for the iPhone. B) increase the demand for the Galaxy. C) increase the quantity demanded for the Galaxy. D) increase the quantity demanded for the iPhone.

B) increase the demand for the Galaxy.

If the price of music downloads was to decrease, then A) the demand for MP3 players would decrease. B) the demand for MP3 players would increase. C) the supply of MP3 players would increase. D) the quantity demanded of MP3 players would decrease.

B) the demand for MP3 players would increase.

If in the market for peaches, the supply curve has shifted to the left A) the supply of peaches has increased. B) the supply of peaches has decreased. C) the quantity of peaches supplied has increased. D) the quantity of peaches supplied has decreased.

B) the supply of peaches has decreased.

If a demand curve shifts to the left, then A) demand has increased. B) quantity demanded has increased. C) demand has decreased. D) quantity demanded has decreased.

C) demand has decreased.

Oppurtunity Cost

Can be or can't measured

Tastes

Consumers can be influenced by an adverstising campaign for a product.

Expected Future Prices

Consumers choose not only which products to buy but also when to buy them. If they think the price of a product will go up, then they will buy it now.

What is the difference between an "increase in supply" and an "increase in quantity supplied"? A) There is no difference between the two terms; they both refer to a shift of the supply curve. B) There is no difference between the two terms; they both refer to a movement along a given supply curve. C) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased. D) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

D) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Which of the following would shift the supply curve for MP3 players to the right? A) an increase in the price of a substitute in production B) an increase in consumer income (assuming that all MP3 players are normal goods) C) a decrease in the number of firms that produce MP3 players D) a decrease in the price of an input used to produce MP3 players

D) a decrease in the price of an input used to produce MP3 players

Holding everything else constant, an increase in the price of MP3 players will result in A) a decrease in the quantity of MP3 players supplied. B) a decrease in the demand for MP3 players. C) an increase in the supply of MP3 players. D) a decrease in the quantity of MP3 players demanded.

D) a decrease in the quantity of MP3 players demanded.

Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family A) hamburgers and chicken nuggets are complements. B) hamburgers and chicken nuggets are inferior goods. C) hamburgers and chicken nuggets are normal goods. D) hamburgers and chicken nuggets are substitutes.

D) hamburgers and chicken nuggets are substitutes.

Shift to the Left

Decrease in Demand

Shift to the left

Decrease in supply

Cannot have Barriers to have

Free Market

Subsitutes

Goods and Services that can be used for the same purpose

Complements

Goods and services that are used together, the more consumers buy of one, the more they will buy of the other

Expected Future Prices

If a firm expects that the price of its product will be higher in the future than it is today, it has an incentive to decrease supply now and increase it in the future

Positive Statement

If you do this, then that will happen

Variables That Shift Market Demand

Income, Prices of Related Goods, Tastes, Population and Demographics, Expected Future Prices

Shift to the Right

Increase in Demand

Shift to the right

Increase in supply

Aging of the Baby Boom Generation

Increasing need for healthcare services, drive up medicare costs, Bigger homes will turn in favor of apartments and condos or small

Prices of Inputs

Most likely to cause supply curve to shift, An input in anything used in the production of a good or service

Do PPFs tell profits, or demand

No, they don't give the details

Which point(s) in the following production possibilities frontier (PPF) is/are inefficient. Why?

Point E because it is unattainable. Point A because production there is not using all available resources. Point B because it is where the most resources are used to produce capital goods. Points B, C, D, and E because they are unattainable. Points A, B, C, and D because they are attainable. ans b

Which point(s) in the following production possibilities frontier (PPF) is/are efficient. Why?

Points A, B, C, and D because they are attainable. Point E because it is where the most capital and consumption goods combined are produced. Point B because it is where the most resources are used to produce capital goods. Points B, C, and D because this is where maximum output is produced with available resources. Point A because it is inside the PPF. ans d

Which point in the following production possibilities frontier (PPF) is unattainable?

Points B, C, and D because they are on the PPF. None of the points because they are all feasible. Point E because it is outside the PPF. All the points because the production of each has an opportunity cost. Point A because it is inside the PPF. ans c

Variables that shift Market Supply

Prices of inputs Technological change Prices of substitutes in production Number of firms in the market Expected future prices

Change in Demand

Refers to a shift of the demand curve, A shift occurs when there is a change in one of the variables other than the price that affects the willingness of consumers to buy the product

Change in Supply

Refers to a shift of the supply curve, the supply curve will shift when there is a change in one of the variables

Population and Demographics

Refers to age, race and gender, can effect a demand for a product

Substitution Effect

The Change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

Demographics

The Characteristics of a population with respect to age, race, and gender

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price

Quantity Supplied

The amount of a good or service that a firm is willing and able to supply at a given price

Income Effect

The change in the quanitity demanded of a good that results from the effect of a change in the goods price on consumers purchasing power

What is the circular-flow diagram and what does it illustrate?

The circular-flow diagram shows how firms are linked through product and factor markets. The circular-flow diagram shows the maximum attainable combinations of two products that may be produced with available resources and current technology. The circular-flow diagram shows how households and firms are linked through product and factor markets. The circular-flow diagram shows how households and firms are linked through product markets. The circular-flow diagram shows the government's role in markets through taxes and transfer payments. ans c

Market Demand

The demand by all the consumers of a given good or service

What does increasing marginal opportunity costs mean?

The economy is unable to produce increasing quantities of goods and services. Increasing the production of a good requires smaller and smaller decreases in the production of another good. Increasing the production of a good requires decreasing the production of another good. Increasing the production of a good requires larger and larger decreases in the production of another good. Production is not occurring on the production possibilities frontier. ans d

Income

The income that consumers have available to spend affects their willingness and ability to buy a good

Prices of Related Goods

The prices of other goods can also affect consumers demand for a product

What are the implications of increasing marginal opportunity costs for the shape of the production possibilities frontier?

The production possibilities frontier will have a positive slope. The production possibilities frontier will be bowed outward. The production possibilities frontier will be a straight line. The production possibilities frontier will have be bowed inward. The production possibilities frontier will have a negative slope. ans b

Law of Demand

The rule that holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

Law of Supply

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied

The figure shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Which country has a comparative advantage in the production of cashews?

They have equal productive abilities. Pakistan. Neither country. Indonesia. ans b

Number of Firms in the Market

Will change supply, When new firms enter a market, the supply curve shifts to the right, when existing firms leave a market, the supply curve shifts to the left

The diagram shows various points on three different production possibilities frontiers for a nation. Consider the following events: a. a decrease in the unemployment rate. b. general technological advancement. c. an increase in consumer wealth. Which of the events listed above could cause a movement from V to W?:

a and b only. a, b, and c. b and c only. a only. ans d

An example of a factor of production is:

a computer produced by Dell. the computers exported by Dell. a worker hired by Dell. stock issued by Dell. ans don't know but might be c

A shift of a demand Curve

an increase or a decrease in demand

A movement along a demand curve

an increase or a decrease in the quantity demanded

In the circular-flow diagram, producers:

and households spend earnings from resource sales on goods and services in the factor market. sell goods and services in the input market. hire resources sold by households in the factor market. spend earnings from resource sales on goods and services in the product market. ans b

The following are the production possibilities frontiers for country A and for country B. The comparative advantage for country A lies in:

both goods. corn. oil. none of the goods. ans c

The primary purpose of _____________ is to encourage the expenditure of funds on research and development to create new products

centrally planned economies. patents and copyrights. nationalizing oil companies. government-run health care. ans b

The following are the production possibilities frontiers for country A and for country B. After these two countries specialize and trade with each other, country B will be importing:

corn. oil. both goods. none of the goods. ans b

On the diagram, movement along the line from points A to B to C illustrates

decreasing marginal opportunity costs. constant marginal opportunity costs. reflexive marginal opportunity costs. increasing marginal opportunity costs. ans c

Curve

every line in economics

The production possibilities frontier will shift outward

if technology declines. if resources are not used in production. if resources are used to produce capital goods. if resources are used to produce consumption goods. if production occurs outside the production possibilities frontier. ans E

A production possibilities frontier:

shows the act of buying and selling. shows the market for a good or service. shows the maximum attainable combinations of two goods that may be produced with available resources. show how unlimited wants exceed the limited number of resources available to fulfill those wants. ans c

One of the great benefits of trade is:

that is makes it possible for people to become better off by increasing their production but not their consumption. that is makes it possible for people to become better off by increasing their consumption. that is provides people what they desire most in life even if it does not enhance the means for achieving their goals. that is makes it possible for people to become better off by increasing both their production and their consumption. ans d

When a shift in a demand or supply curve causes a change in equilibrium price, what happens

the change in price does not cause a further shift in demand or supply.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

the frontiers are bowed out. the frontiers are straight lines. neither person faces trade-offs. they choose not to trade with one another. ans d

Assume that England and Holland can switch between producing milk and oats at a constant rate. Number of Units Produced in an Hour Milk Oats England 10 4 Holland 8 6 We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Holland. If we were to do this, measuring milk along the horizontal axis, then

the slope of England's production possibilities frontier would be 10/4 and the slope of Holland's production possibilities frontier would be 4/3. the slope of England's production possibilities frontier would be 4/10 and the slope of Holland's production possibilities frontier would be 3/4. the slope of England's production possibilities frontier would be -4/10 and the slope of Holland's production possibilities frontier would be -3/4. the slope of England's production possibilities frontier would be 10/4 and the slope of Holland's production possibilities frontier would be -4/3 ans a

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

the two countries' combined output of both goods will be higher than it would be in the absence of trade. Greece will produce more fish than it would produce in the absence of trade. Germany will produce more cars than it would produce in the absence of trade. All of the above are correct. ans d

Arlene quits her $125,000-a-year-job to take care of her ailing parents. What is the opportunity cost of her decision?

the value she attributes to the satisfaction she receives from taking care of her parents. zero, since she will no longer be earning a salary. it depends on the "going rate" form home-care providers. at least $125,000. ans d

When can two countries gain from trading two goods?

when the first country can only produce the first good and the second country can only produce the second good. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost. when the first country is better at producing both goods and the second country is worse at producing both goods. Two countries could gain from trading two goods under all of the above conditions ans c

We can show economic efficiency:

with points inside the production possibilities frontier. with points on and outside the production possibilities frontier. with points outside the production possibilities frontier. with points inside and on the production possibilities frontier. with points on the production possibilities frontier. ans e

We can show economic inefficiency:

with points on the production possibilities frontier. with points outside the production possibilities frontier. with points on and outside the production possibilities frontier. with points inside and on the production possibilities frontier. with points inside the production possibilities frontier. ans e