Micro

The graph below shows the supply and demand curves for milk. Graph the change in the market for milk if there is a decrease in the price of milk cows.

A decrease in the price of milk cows, an input of milk production, decreases production costs. This leads to an increase of quantity supplied at every price level. The supply curve shifts to the right, leading to a higher equilibrium quantity and a lower equilibrium price of milk.

Which of the following gives the definition of usury law?

A law that imposes an upper limit on the interest rate that lenders can charge. An usury law is defined as a law that imposes an upper limit on the interest rate that lenders can charge. In the United States, these laws are mostly erected by states.

Select all of the following descriptions that are true about market economies.

A market economy is based on private enterprise. A person's income is based on his or her ability to convert resources (especially labor) into something society values.

Of the following examples below, which is not an example of scarcity?

A puppy mill was shut down and all of the dogs went to an overcapacity humane society, leading to an increase in the supply of adoptable dogs.

An online celebrity was seen using a fidget spinner during a video, which caused a significant jump in popularity. In the graph below, show how demand for fidget spinners is impacted by this change by shifting the appropriate curve.

An increase in popularity results in an increase or rightward shift in demand for fidget spinners. A rightward shift in demand means that at any price, the quantity demanded will be higher than it was before.

The graph below represents the market for apartments, an inferior good. Graph the change in demand if wages increase.

As incomes rise, many people will be less likely to rent an apartment and more likely to own a home. A product whose demand falls when income rises, and vice versa, is called an inferior good. When income increases, the demand curve for apartments shifts to the left decreasing both equilibrium quantity and price for apartments.

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 TV set. The opportunity cost of producing one bushel of wheat in the US is 2 TV sets. If these two countries specialize according to comparative advantage and then trade with each other, _____________________.

Canada will export wheat and import televisions

A press release on a conflict in oil-producing nations creates concern that supplies of gasoline may be disrupted in the next three days. In the graph below, show how demand for gasoline is impacted by shifting the appropriate curve.

Demand can be impacted by expectations about future prices of a good. Disruption in supplies of gasoline caused by conflict in oil-producing countries would lead gasoline prices to increase in the near future. Consumers who anticipate this price increase will demand more gasoline now, and the current demand for gasoline increases, thus shifting the demand curve to the right. A rightward shift in demand means that at any price, the quantity demanded will be higher than it was before.

A war in the Middle East disrupts oil-pumping schedules. In the graph below, demonstrate the impact on the supply of oil by shifting the appropriate curve.

Disruption of oil pumping will reduce the supply of oil. This will cause a leftward shift in the supply curve. A leftward shift in supply means that at every given price, the quantity supplied is lower.

A rise in the price of DVD players will increase the demand for DVDs.

False

As the Baby Boomer generation transitions into retirement, the demand for withdrawals from the social security system will decrease.

False

If the Netherlands enjoys comparative advantage in the production of dairy products, it implies that the opportunity cost of producing dairy products in the Netherlands is greater than that of its trading partners.

False

In command economies, decision-making is decentralized.

False

You survive through grad school by eating a bland diet of rice and lentils, which you view to be inferior to more expensive meals. After graduating, you secure a high-paying job and can now afford much more than rice and lentils. As a result, your demand for rice and lentils is likely to increase.

False Rice and lentils are clearly an inferior good in this example. Eating out and higher priced foods will make up a higher share of spending after an increase in income.

If someone was to conduct a study in the field of microeconomics, which of the following questions might they attempt to answer?

How do people decide whether to work full time or part time? What determines how households and individuals spend their budgets?

What is the opportunity cost of owning a business?I. The economic profits that the business earnsII. The accounting profits that the business earnsIII. The profits that could be earned in another business using the same amount of resources

III only

The graph below represents the market for pineapples. Illustrate the change in the market for pineapples if the price of melons, a substitute, decreases.

If the price of melons decreases, people will buy more melons and fewer pineapples, as melons are a substitute for pineapples. As a result, the demand for pineapples will decrease. The demand curve for pineapples shifts to the left, leading to lower equilibrium quantity and price levels

Which scenario is asking you to apply marginal analysis?

It costs $3 to go down the water slide. The first time you go down the slide, you are really excited, but your interest decreases each time you go down. How many times should you go down the water slide?

What is true of the product combination that satisfies allocative efficiency?

It is the combination of products that society most desires. It is one of many combinations of products that use all available resources.

According to this production possibilities frontier, why does P demonstrate productive efficiency?

It uses all of society's available resources.

At one time, most of the cars produced in Mexico were sold in Mexico. Today, however, Mexico both exports and imports cars. Which of the following is a plausible explanation for this observation? How could comparative advantage explain this scenario?

Mexico specializes in the production of high-end cars, which it exports, and imports low-end cars that can be produced at lower cost elsewhere.

Which two explanations represent models in the study of economics?

Models simplify real world interactions for the purposes of illustration. Economic models are used to test theories.

Suppose the market for credit cards is currently in equilibrium. What will be the consequence if the government sets a limit on credit card interest rates that is above the market equilibrium?

Nothing If the government sets a limit on interest rates that is above the current equilibrium, this will not have any impact on the market for credit cards.

The graph below depicts the market for shoes in Portugal. Suppose the price of rubber, a key input in the production of shoes, decreases. Illustrate the effect of the change in the price of rubber on the market for shoes in Portugal by adjusting the graph accordingly.

One of the factors affecting supply is the cost of inputs. A fall in the cost of an input is a change that increases the quantity supplied at any given price. In this question, the price of rubber, a key input in the production of shoes, has fallen. Therefore, the quantity supplied of shoes at any given price would increase, shifting the supply curve of shoes to the right. The demand curve does not shift because none of the factors affecting demand have changed. The result of demand remaining unchanged and supply increasing is a higher equilibrium quantity and a lower equilibrium price of shoes.

Consider the diagram. If your budget is $18, at which point can you consume 8 bottles of water and 2 apples?

Point E

According to this production possibilities frontier, which of the following statements are true about point Q?

Point Q is not considered to demonstrate productive efficiency.

Considering all other things are held constant, suppose an increase in supply in the market for savings leads to a fall in the interest rate from 5% to 1%. How will this impact the quantity demanded in the market for savings?

Quantity demanded will increase. If an increase in the supply of savings causes interest rates to fall, the quantity demanded of savings will increase. This is illustrated as a movement along the demand curve.

Suppose Springfield, Illinois implements a 5% increase in the minimum wage. What are some possible effects of this change?

Some employees being given less work hours An increase in income for some employees An increase in the minimum wage can cause an increase in income for some workers who might be asked to work the same number of hours (or even more hours), while other workers might be given reduced work hours or some might even getlaid off which would result in these workers receiving less or even no income.

The Millennial generation sees a 10% wage decrease compared to the previous generation. How does this impact the demand for apartments as opposed to houses?

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? Apartments are an inferior good, so when income decreases, demand for apartments instead of houses increases. Step 3: The demand for apartments will increase or shift right. Step 4: A rightward shift in demand causes a movement up the supply curve, increasing the equilibrium price and the equilibrium quantity.

A longer growing season caused by a warm spring and an ideal amount of water hits Georgia. Demonstrate the effect on the longer growing season on the equilibrium price and quantity of peanuts.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The extended growing season will increase supply. Step 3: The supply of peanuts will increase, shifting the supply curve to the right. Step 4: A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity.

Cream cheese, a complement of bagels, just saw a 15% increase in prices. Demonstrate the effect of cream cheese price increase on the equilibrium price and quantity of bagels.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in cream cheese prices will decrease the demand for bagels, its complement. Step 3: The demand for bagels will decrease, shifting the demand curve to the left. Step 4: A leftward shift in demand causes a movement down the supply curve, lowering the equilibrium price and the equilibrium quantity. FEEDBACK

A main component used in the production of bowling balls has risen in price by 15%. Demonstrate the effect this has on the equilibrium price and quantity of bowling balls.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in price will decrease supply because of increased production costs. Step 3: The supply of bowling balls will decrease, shifting the supply curve to the left. Step 4: A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price and decreasing the equilibrium quantity.

You are responsible for setting prices of finished clothing items at a major textile manufacturer. In the past year the price of cotton, a critical input, has increased by 20%. What is the likely result?

Supply of clothing will decrease. When a firm faces an increase in production costs, its profits will decline at the given selling price, causing the firm to reduce production and quantity supplied.

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 computer. The opportunity cost of producing one bushel of wheat in the U.S. is 2 computers. If these two countries specialize according to comparative advantage and then trade with each other, which of the following is an expected outcome?

The U.S. will import wheat and export computers.

All other things unchanged, what happens to the demand curve for organic pasta if there is a decrease in family income? For this example, consider organic pasta a normal good.

The demand curve will shift to the left. A decrease in family income will cause the demand curve to shift to the left if organic pasta is a normal good but to the right if organic pasta is an inferior good.

In which of the following cases is productive efficiency not satisfied? Assume we start at a point on the PPF between two products.

The economy switches to producing less of one product without increasing the production of the other product.

Suppose the interest rates for mutual funds market were to decrease by a significant amount. Ceteris paribus, how would you expect the supply curve for certificate of deposit accounts (a substitute good) to change in response to this?

The supply curve will shift to the right. When the interest rates for mutual funds fall dramatically but all else remains the same (ceteris paribus), some investments in mutual funds will move to certificate of deposit accounts, transferring some of the supply of mutual funds to certificate of deposit accounts. This will shift the supply curve of certificate of deposit accounts to the right.

Identify one key takeaway from the Circular Flow Diagram.

There are no free exchanges between firms and households.

A macroeconomist would be concerned with the following statement. "Two major hurricanes caused significant damage to the eastern seaboard and led to a fall in GDP and a rise in unemployment in the U.S. economy."

True

A recession is likely to hit a gambling and entertainment mecca like Las Vegas particularly hard compared with the average city.

True

Globalization is the trend in which buying and selling in markets has increasingly crossed national borders.

True

John says to his friend, "This concert is going to cost me $20 when I buy the ticket." His friend corrects him and says, "actually, this concert will cost you more than $20 since you have to miss work." His friend is referring to the opportunity cost.

True

The following scenario is an example of scarcity.Each lake has a limited number of fish living in it. As the number of fishermen who fish at the lake increases beyond a certain point, we see the fish population start to decline.

True

In much of the United States, if a living wage were set as a price floor in the unskilled labor market by either the federal or local government, then it would be a binding price floor.

True A living wage is defined as a price floor that is designed to ensure that employees working full time make enough money to afford the essentials of life. A price floor set above the equilibrium is referred to as binding because it prevents the market from reaching the equilibrium. In most of the United States, a living wage would be a binding price floor, since a living wage is above the market equilibrium wage level.

A rise in the price of a substitute for olive oil will increase demand for olive oil.

True A rise in the price of a substitute will increase demand because people are likely to buy the more affordable product instead of the higher priced one.

In general, improvements in technology used in production will result in an increase in supply.

True When a firm discovers a new technology that allows the firm to produce at a lower cost, the supply curve will shift to the right, increasing quantity produced at any given price.

The Manchurian Plain in Northeast China produces most of the country's major crops, such as soybeans and corn. In 2014, the plain experienced the most devastating drought in 50 years. On the graph below, demonstrate the drought's impact on the supply of crops by shifting the appropriate curve.

Unfavorable natural conditions, such as droughts, decrease the supply of agricultural products. shifting the supply curve to the left. A leftward shift in supply means that at every given price, the quantity supplied is lower.

A drought results in a very small crop of sweet potatoes at the same time as the American Physicians Association releases a journal article praising the health benefits of sweet potatoes. Which of the following statements is true about the equilibrium quantity of sweet potatoes?

We do not know the magnitude of the shift in supply and demand; therefore, we cannot determine the effect on equilibrium quantity.

As more high school graduates decide to go to college, what happens in the market for textbooks?

When the population that consumes a good changes, the demand for that good changes. In this case, more college students means in increase in demand for textbooks. The demand curve shifts to the right, increasing both equilibrium price and quantity.

Which of the following is not a factor that could cause a shift in supply for a certain good?

a change in income

Which of the following is not a result from a below-equilibrium interest rate for credit cards?

a decrease in the interest rates of savings accounts The interest rate will decrease only if it is above equilibrium. In a market with an above-equilibrium interest rate, an excess of financial capital will arise since people will be more incentivized to borrow than to save. As a result, the interest rate will decrease toward the equilibrium level since banks will be able to lower rates without losing business.

When considering factors that shift demand curves, all of the following will decrease demand except _______________.

a rise in income (for a normal good)

Suppose the market for savings accounts is currently in equilibrium. Of the following consequences, which would result from a government intervention that sets a maximum interest rate that is below the equilibrium rate in the market?

a shortage of people saving money a surplus of banks supplying saving accounts When the government institutes a minimum interest rate that is below the market interest rate, fewer people will want to save at this lower interest rate, but more banks will want to make savings accounts available. This results in a shortage of people saving and a surplus of savings accounts.

Recently, the electronic cigarette industry has come under increased scrutiny from retailers. New legislation has been passed that will significantly lessen supply in the medium term, although it will take some time for the legislation to go into effect. Knowing what you know about factors that affect the demand curve, what would you anticipate the effect of this legislation will be on short-run demand for electronic cigarette products?

a significant rightward shift in the short-run demand as consumers stock up in anticipation of a shortage

Specialization in a particular small job allows workers to focus on the parts of the production process where they have a(n) __________________.

advantage

Comparative advantage is a measure of _____.

advantage due to specialization

Economic theories and models can give us ideas about which of the following?

all of the above

Businesses typically support globalization because globalization _________________________.

allows access to more markets

Which of the following factors would not result in a change in the supply of automobiles?

an increase in the price of gasoline Changes in the price of inputs used to make an automobile (steel, rubber, and glass) would change the supply of automobiles. While gasoline is needed to run an automobile, it is not a factor of production. This would affect the demand for automobiles.

The law of diminishing returns states that the marginal productivity of additional resources employed_________________.

can be high initially but will eventually decrease

Which of the following cannot be an example of a pair of substitute goods?

computers and computer mouses

Corn syrup and maple syrup are substitutes. News of health benefits from maple has increased the demand for maple syrup and decreased the demand for corn syrup. Meanwhile, the government has subsidized corn crops, a key ingredient of corn syrup. As a result, the equilibrium price of corn syrup _______ and the equilibrium quantity ________.

decreases; is unknown

When goods are produced, the process can be broken down into a number of specific tasks. This is called ____________________.

division of labor

When considering factors that shift supply curves, which of the following will increase supply?

favorable natural conditions for production lower taxes levied on producers Favorable natural conditions for production will increase supply because firms are able to produce more with the available resources. Lower taxes will increase supply because taxes are treated as costs by firms.

Which of the following factors will primarily affect the supply of bicycles? Note that rubber and aluminum are used to produce bicycles.

higher prices for rubber lower prices for aluminum

Which of the following, when placed in the empty box shown below best completes the circular flow diagram?

households

Which of the following best completes the statement below? If the price of coffee falls by 90%, we would expect demand for coffee stirrers to _____________. This occurs because the two goods are close ______________.

increase; complements

Suppose that the demand and supply curves have similar steepness. If demand for the good increases slightly and at the same time supply of that good significantly decreases, the equilibrium price of the good will ________ and the equilibrium quantity of the good will ________.

increase; decrease

If the price of indoor cycling classes increase by $10, we would expect the demand for fitness classes to _______________. This is because indoor cycling classes and fitness classes are ______________.

increase; substitutes

As additional increments of marginal resources are added to either healthcare or education, the marginal benefit from those additional increments will decline. What do economists call this pattern?

law of diminishing returns

Which of the following is the result of a government intervention that sets a maximum interest rate in the market for car loans that is above the equilibrium interest rate?

nothing will change If a maximum interest rate for car loans is set above the equilibrium interest rate, no change will occur.

Comparative advantage is a measure of _____.

opportunity cost maximization

All of these scenarios cause the Demand Curve for a product to shift (left or right), except for one. Identify that one scenario that does not shift the Demand Curve.

price of the good changes When the price of a good changes, it is a movement along the demand curve, not a shift in the demand curve. The new equilibrium point along the demand curve will indicate both the new quantity demanded and the new price.

The simplest example of a ________________is the interest rate.

rate of return The simplest example of a rate of return is the interest rate. For example, when you supply money into a savings account at a bank, you receive interest on your deposit. The interest the bank pays you as a percent of your deposits is the interest rate.

Which description best fits the definition of opportunity cost?

the measure of cost by what is given up in exchange for what is obtained

A nation's comparative advantage in the production of an item is determined by __________________.

the opportunity cost of producing the item relative to a trading partner's opportunity cost