Microeconomics Test 1
If market demand decreases:
Equilibrium price and quantity will both decrease
According to the theory of comparative advantage:
Every country can produce some good with a lower opportunity cost
An inferior good is one that:
Experiences decreased demand when income increases
"The U.S. government should increase the federal minimum wage from 7.25 to 15 per hour" is an example of a positive statement.
False
If Maria is willing to pay $50 for a sweatshirt, how much consumer surplus does she earn if the market price for sweatshirts is $27.50 each?
$22.50
Absolute advantage derives from which of the following?
The lowest cost of production
The principles of comparative advantage, specialization, and trade apply to: I. individuals II. Communities III. Regions IV. Nation
All of the above
Which of the following would not shift the demand curve for energy drinks? A. A change in consumer income B. A change in the price of energy drinks C. A change in the expectation about a future price of energy drinks D. A change in the price of coffee, a substitute for energy drinks
B. A change in the price of energy drinks
An example of a marginal decision is deciding whether to:
Buy one more apple or one more banana.
How would a fall in the price of hot dogs impact the demand for hot dog buns?
Cause an increase in demand
How would an approaching hurricane that threatens a major oil refinery in Texas impact the demand for gasoline?
Cause an increase in demand
An increase in the future expected price of oil will _______ supply
Decrease
Leaving a tax on the production of paper-based products (a large producer of carbon) would _______ the supply of paper-based products
Decrease
If the U.S. economy produces only guns and butter and resources are specialized, technological improvements of both goods would shift the entire production possibilities frontier inwards and to the left.
False
In a world with trade, no one can afford to specialize.
False
True or False: A country could have comparative advantage in producing everything
False
True or False: A country that has the absolute advantage in production will also have the comparative advantage
False
True or False: An increase in the price of a good will decrease demand for that good.
False
True or False: If a price floor is above the equilibrium price it will have no effect in the market
False
True or False: The benefits of trade depend on absolute advantage, not comparative advantage
False
True or False: There is no relationship between present prices and future prices
False
Circular flow model of a market economy
Households buy and consume goods and services Firms pay wages to households Firms produce and sell goods and services
A point under the curve on a PPF graph represents an allocation of resources that is:
Inefficient
The relationship among markets, specialization, and trade is best characterized as:
Markets encourage specialization, which in turn increases the demand for trade
What is thinking on the margin?
Marking choices by comparing the additional benefits and additional costs from doing a little bit more of some activity
Positive or normative statement? The government should not have bailed out the domestic automobile market
Normative
A rock carving from ancient norway depicts two identical people doing different jobs in the same boat: one uses a bow to hunt while the other paddles. How does this early example illustrate the benefits of trade?
One learns to be very good at paddling and one learns to be very good at hunting; this is an example of specialization and division of knowledge
How would the supply curve shift for gasoline if there was an increase in the number of producers of gasoline?
Shift to the right
Why do people specialize?
Specialization increases productivity.
To benefit the most from trade, a country should:
Specialize in an activity for which it has a comparative advantage
Suppose it is widely believed that the price of 4k televisions will be lower next year. What will happen as a result of such beliefs?
The demand for 4k TVs will decrease now
The September 11th terrorist attacks turned many people away from flying. Following the attack, the supply and demand model would predict which of the following events in the airline travel market?
The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity
An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?
The equilibrium price decreases; the change in the equilibrium quantity is uncertain
The better a country is at producing one good:
The higher its opportunity cost of producing other goods
Why is it less costly to attend college during a recession (in other words, when the economy is doing poorly)?
The opportunity cost is lower during a recession because there are fewer labor market opportunities.
A supply and/or demand graph typically shows
The quantity of the good on the horizontal axis and the price of the good on the vertical axis
A country has an absolute advantage if it can produce _________ good using _________ inputs than another country.
The same; fewer
If the demand curve for sunglasses shifts to the right, what happens with the supply curve for sunglasses?
There is a movement rightward rightward along the supply curve
At market equilibrium:
There is no incentive for price to change
Shortages in economic markets are inefficient because
Time spent waiting in line or searching for a product is wasted time, and hence a wasted resource
Where would a point be on a PPF graph that the economy cannot currently produce?
To the right of the curve
The law of increasing opportunity cost states that the more a good is produced, the opportunity cost of producing that good increases
True
True or False: A decrease in the supply of milk will lead to a decrease in the quantity demanded of milk
True
True or False: A price ceiling will only cause deadweight loss if it is placed below the equilibrium price
True
True or False: An increased use of technology and automation in the production of consumer electronics would cause the supply for consumer electronics to increase
True
True or False: If a frost destroys half of the potato crop in Idaho, the equilibrium price of potatoes will rise
True
True or False: It is virtually impossible for a country to be the low-cost producer of all goods and services
True
True or False: The demand for an inferior good increases when income decreases
True
True or False:If golf course fees decrease, the demand for golf balls will increase
True
A shortage results when
a binding price ceiling is imposed
An "economy" is
a method of resource allocation
A price floor is:
a minimum price allowed by law
Normative statement
a statement that expresses how something (like government) should function , describes what should or ought to be
Consumer surplus is the amount that consumers
are willing to pay for a good minus what they actually pay for it
Economists call the maximum legal price a price ceiling because the price:
cannot legally go higher than the ceiling
A straight-line production possibilities frontier represents
constant opportunity cost
If we expect the current streak of bad weather to lead to higher wheat prices in the future, the:
current demand for wheat will increase
When a price ceiling is in effect:
demanders compete for goods in short supply by accepting reductions in quality
Gains from trade are maximized at the:
equilibrium price and quantity
A nonbinding price ceiling leads to a(n)
equilibrium quantity
The quantity exchanged of a good ______ under a binding price floor.
falls
In the case of a binding price floor, the price paid in the market will be:
greater than the free market equilibrium price
If romaine lettuce and iceberg lettuce are substitutes, a(n) ________ in the price of romaine lettuce will ________ the demand for iceberg lettuce.
increase; increase
Xbox One controllers use two AA batteries. When the price of Xbox One fell from $399 to $299, the demand for AA batteries:
increased since they are a complement good to the Xbox One
Skis and ski boots are complements if a decrease in the price of skis,
increases the demand for ski boots
Quantity demanded:
is the amount that buyers are willing and able to buy at a particular price
New research suggests that cholesterol may not be as unhealthy as previously thought. If so, what will happen to the demand for eggs, a high cholesterol food?
it will increase because of consumers' taste for food that is perceived to be healthier
A price ceiling is a
legally established maximum price that can be charged for a good
If there is a surplus of a good, sellers will:
lower the price in order to increase quantity demanded
Comparative advantage is determined by what?
opportunity cost
The minimum wage is an example of
price floor
The _______ shows all combinations of goods that a country can produce
production possibilities frontier (PPF)
In a market, the equilibrium condition is given by:
quantity demanded = quantity supplied
The key condition for equilibrium to occur in a market is:
quantity demanded equals quantity supplied
A binding price ceiling leads to a(n)
shortage
Positive statement
statement which describes the world as it is
A binding price floor leads to:
surplus
Comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
Absolute advantage
the ability to produce a good using fewer inputs than another producer
If sellers want to sell more products than buyers are willing to purchase, we know that:
the current price is greater than the equilibrium price
The law of demand:
the lower the price, the greater the quantity demanded
The demand curve for oil shows:
the quantity demanded of oil at different prices
Anonymity on the internet has lowered the cost of rudely confronting people. As a result, what has happened to the supply of rude confrontations?
the supply has increased; shifting down and to the right
The opportunity cost of a choice is
the value of the opportunities lost
Law of demand
there is a negative relationship between price and quantity demanded
Opportunity cost formula
what you give up/what you gain
Price ceilings do not have much effect:
when market prices are at or below the ceiling
