Microeconomics midterm 2

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Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

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.

What is the difference between an "increase in supply' and an increase in quantity supplied'?

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 is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied.

Let D= demand, S = supply. P = equilibrium price, and Q- equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?

Farm revenues decrease.

Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. Which of the following statements is true?

Haley has a comparative advantage in making bracelets and Serena in making necklaces.

Which of the following could explain why the demand for table salt is inelastic?

Households devote a very small portion of their income to salt purchases.

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is elastic at the highest prices and inelastic at the lowest prices.

Which of the following is a problem inherent in centrally planned economies?

Production managers are more concerned with satisfying government's orders than with satisfying consumer wants.

Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces What is Serena's opportunity cost of making a bracelet?

2 necklaces

Pogo Sticks [Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles What is Barney's opportunity cost of making a unicycle?

2 pogo sticks

Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Bamey. They can gither devote their time to making pogo sticks or making unicycles. What is Fred's opportunity cost of making a unicycle?

3 pogo sticks

Refer to the diagram to the right which shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables Suppose Mendonca is currently producing 60 pounds of vegetables per period. How much meat is it also producing, assuming that resources are fully utilized?

75 pounds of meat

Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

Which of the following is a macroeconomic question?

What determines the growth rate of gross domestic product?

Which of the following is a macroeconomic question?

What determines the inflation rate?

Which of the following is a microeconomic question?

What factors determine the price of carrots?

The three fundamental questions that any economy must address are

What goods and services to produce; how will these goods and services be produced; and who receives them?

A movement along the demand curve for toothpaste would be caused by

a change in the price of toothpaste

Which of the following will shift the demand curve for a good?

a decrease in the price of a complementary good

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre - hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

a shortage of gasoline

Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?

an increase in supply and an increase in demand greater than the increase in supply

An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in

an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.

Which of the following would cause a decrease in the supply of peanut butter?

an increase the price of peanuts

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is

an inferior good

Economic models

are simplified versions of reality

Comparative advantage means the ability to produce a good or service

at a lower opportunity cost than any other producer

Which of the following goods would have the most inelastic demand?

bread

You have an absolute advantage whenever you

can produce more of something than others with the same resources.

Income elasticity measures how a good's quantity demanded responds to

change in buyers' incomes.

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

change price a little bit and observe what happens to total revenue.

Economics is the study of the ______ people make to attain their goals, given their ______ resources

choices; scarce

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

competition

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and

complements

If the cross - price elasticity of demand for goods X and Y is negative, this means the two goods are

complements

The decision about what goods and services will be produced in a market economy is made by

consumers and firms choosing which goods and services to buy or produce.

If a demand curve shifts to the right, then

demand has increased

An outward shift of a nation's production possibilities frontier represents

economic growth

The opportunity cost of taking a semester- long economics class is

equal to the highest value of an alternative use of the time and money spent on the class.

Microeconomics is the study of

how households and firms make choices

Price elasticity of demand measures

how responsive quantity demanded is to a change in price

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes.

The production possibilities frontier model shows that

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease.

A production possibilities frontier with a bowed outward shape indicates

increasing opportunity costs as more and more of one good is produced

If a good has a negative income elasticity of demand, this indicates that the good is

inferior

If society decides it wants more of one good and all resources are fully utilized, then

it has to give up some of another good and incur some opportunity costs.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.

less elastic than

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one

If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.

linear

Economists reason that the optimal decision is to continue any activity up to the point where the

marginal benefit equals marginal cost

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

marginal revenue

The production possibilities frontier shows the _______ combinations of two products that may be produced in a particular time period with available resources.

maximum attainable

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

model

Refer to the table. Assume that Tomaso's Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear

outside Tomaso's production possibilities frontier

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

patents and copyrights

Cross - price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

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

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

Every society faces economic trade-offs. This means

producing more of one good means less of another good can be produced.

When you purchase a new pair of jeans you do so in the

product market

is a situation in which a good or service is produced at the lowest possible cost.

productive efficiency

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

In a market economy, those who are willing and able to buy what is produced

receive the most of what is produced

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

relatively elastic

If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would

remain constant

Refer to the diagram to the right. Point B is

technically efficient

The term "property rights" refers to

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

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources

Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts more than the demand curve. As a result

the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease

Consider the following economic agents: a. the government b. consumers c. producers Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government

The price elasticity of demand is equal to

the percentage change in quantity demanded divided by the percentage change in price

The price elasticity of supply is equal to

the percentage change in quantity supplied divided by the percentage change in price

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if

the price of the good changes

Adam Smith's invisible hand refers to

the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole

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

the supply curve for oranges has shifted to the right

Without an increase in the supply of the factors of production, how can a nation achieve economic growth?

through technological advancement which enables more output with the same quantity of resources

The points outside the production possibilities frontier are

unattainable

Scarcity refers to the situation in which

unlimited wants exceed limited resources

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand.

vertical; downward sloping

Allocative efficiency best explains ______, and productive efficiency best explains ______.

what will be produced; how something will be produced

If the economy is currently producing at point Y, what is the opportunity cost of moving to point W?

zero

Which of the following is not a factor of production?

$1,000 in cash

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

0.5

Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. What is Haley's opportunity cost of making a bracelet?

1 1/3 necklaces

Bracelets Necklaces Serena 8 16 Haley 9 12 The table above shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. What is Serena's opportunity cost of making a necklace?

1/2 of a bracelet

Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles What is Barney's opportunity cost of making a pogo stick?

1/2 of a unicycle

Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table above shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles Which of the following statements is true?

Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.

Pogo Sticks Unicycles Fred 24 8 Barney 28 14 The table to the right shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles Which of the following statements is true?

Barney has an absolute advantage in making both products

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Demand is likely to be relatively inelastic.

The branch of economics which studies the behavior of entire economies is called

Macroeconomics

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the right

Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.

The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.

Opportunity cost is defined as

The highest-valued alternative that must be given up to engage in an activity.

Which of the following is a positive economic statement?

The minimum wage law causes unemployment.

Which of the following is a normative economic statement?

The price of gasoline is too high.

Which of the following describes a characteristic of a perfectly competitive market?

There are many buyers and sellers.

Which of the following correctly describes the relationship between economic efficiency and economic equity?

There is often a trade-off between the two.

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.


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