TAMU ECON 202 Module Quizzes #1

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________.

$3

Using Table 3 and Figure 3, and assuming a price of pants equal to $90, the opportunity cost of the fifth shirt is equal

$30

Product & Production per hour: Cooks Tacos Enchiladas Bree 12 6 Will. 4 16 16 22 The opportunity cost for Bree to make a taco is

0.5

Product & Production per week: Producer Shirts Pants Dylan. 12 9 Justin 4 8 16 17 The opportunity cost for Justin to make a pair of pants is

0.5

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross- price elasticity between the two movie club memberships?

1.6

The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about?

15 percent

The price elasticity of demand for Stork ice cream is - 4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

2.5 percent

Using Table 2 and Figure 2, if society is producing no enchiladas, the opportunity cost of producing the first enchilada is

2.5 tacos

Tacos Enchiladas Paige. 15 6 Gage. 9 3 Total 24 9 Figure 2: Using Table 2, what is the opportunity cost for Paige to produce an enchilada?

2.5 tacos.

Suppose Carolyn is on a fixed monthly income of $200 to spend on food while she is in medical school. Further, suppose the price of a single-serving macaroni and cheese is $4 and the price of a baguette is $2. Which one of the following consumption combinations is possible given these prices and income?

20 macaroni and cheeses, 60 baguettes

Refer to Figure 3 -4. At a price of $10, how many units will be sold?

200

If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:

7 bottles.

An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant.

False

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A 1 percent increase in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

Suppose the value of the price elasticity of supply is 4. What does this mean?

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Which of the following pairs of goods are likely to be considered substitutes?

A Ford car and public transportation

Which of the following will cause the price of beer to rise?

A shift to the left in the supply curve of beer A shift to the right in the demand curve for beer Correct: both A and B none of the above

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

A twofold increase in the price of pens and a threefold increase in the price of pencils

Why aren't imports of roses from South America and Africa high year-round instead of just around Valentine's Day?

A) The spike in demand makes it profitable for producers with higher costs (like transportation) to enter the market. B) Flower production in the US is particularly low in February, so US-based supply is shifted leftward that month because of the climate. C) The government limits imported flowers except around Valentine's and Mothers' Day. Correct: A&B None of these

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 formula to calculate arc elasticity of demand?

Arc elasticity of demand = [(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]

Refer to Figure 3-2. A decrease in the price of the product would be represented by a movement from

B to A.

The elasticity of demand for turkeys at Thanksgiving and roses at Valentine's day:

Becomes less elastic.

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?

Both the supply and demand curves have shifted to the left. As a result, there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?

Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

During the past twenty years, the prices of prescription drugs, relative to the prices of other goods, have risen, yet Americans buy more prescription drugs than ever. This might be because

C) with higher incomes and more older Americans, the demand curve for prescription drugs has shifted rightward.

Which of the following is an example of capital?

Correct: Kyle Field smartphones self checkout lines Washington, D.C.

Which of the following statements about positive economic analysis is false?

Correct: There is much more disagreement among economists over positive economic analysis than over normative economic analysis. Positive analysis uses an economic model to estimate the costs and benefits of different course of actions. There is much more disagreement among economists over normative economic analysis than over positive economic analysis. Unlike normative economic analysis, positive economic analysis can be tested.

Which of the following is a product innovation?

Correct: antibiotics self check-out lines assembly lines Kyle Field

A change in all of the following variables will change the market demand for a product except

Correct: the price of the product. tastes. income. population and demographics.

The steps needed to evaluate the best way to organize an economy include:

Determining what will be produced, how it will be produced, and who gets it, and then evaluating these outcomes.

Which of the following statements is TRUE?

Economic models always make accurate predictions about behaviors. Correct: No economic model captures every detail that affects a problem. Economic models must fully reflect reality. Economic models use economists' opinions with no use of data.

Which of the following statements is true of the scientific method?

Empirical arguments are more credible when they are based on a large data set.

Which of the following statements is true?

Every individual, no matter how rich or poor, is faced with situations that require trade-offs.

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1. Increasing ticket prices will increase the total revenue from ticket sales.

False

Which of the following is NOT an example of central economic control:

Family or clan leaders. Warlords. Dictators. Tribal chieftains. Correct: All of the above are examples of central control.

The cross-price elasticity of demand between good X and good Y is -3. Given this information, which of the following statements is true?

Goods X and Y are complements.

Trade

Has been a feature of nearly all economies.

In which of the ways did the video indicate that Americans were rich compared to other societies today:

Housing Entertainment Food Medical care Correct: All of the above.

Which of the following statements is true?

If the price of a good is raised and total revenue increases, demand is inelastic.

Hunter-gatherer societies allocated resources by a combination of

Individual decisions. Sharing customs. Organized hunting/gathering activity Correct: All of the above.

Which of the following statements is true?

Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.

Why has the number of people living on farms gone down so drastically from 1900?

Investment in capital such as tractors Correct: All of these Process innovations such as mechanized planting and harvesting Process innovations such as herd immunization

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

It is elastic at high prices and inelastic at low prices.

Economists assume that the goal of consumers is to

make themselves as well off as possible.

Advantages of trade include that

It permits specialization. It can improve economic performance. It generally benefits both parties. Correct: All of the above.

What does it mean for a prediction to be "testable"

It's possible to show the model is wrong.

Shirts Pants Quinn. 12 8 Knox. 15 5 27 13 Figure 3: Using Table 3 and Figure 3, who will be producing shirts along segment E of the supply curve for shirts?

Knox.

Which of the following goods is likely to have the lowest price elasticity of demand?

Life- saving drugs

Scarcity in an economy emerges from

Limited resources and infinite wants.

The key advantage of market exchange compared to one-on-one (barter) trade is that

Markets allow for greater specialization. Markets allow trading to occur to a larger extent. Markets are more efficient. Correct: All of the above.

According to professor Wiggens' personal preference revealed in the video, is enough Blue Bell produced?

No

As early societies became more complex, economies started to rely

On custom. On centralized control of resources. On markets and trade. Correct: All of the above.

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?

Only individuals face scarcity; firms and the government do not.

Refer to Figure 3 -7. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?

Panel (d)

Which of the following pairs of goods are likely to be considered complements?

Pens and writing pads

People do not "feel" rich because

People always want more.

According to the video, what is the cornerstone of all markets?

People are allowed to freely make the goods they want to make and then to freely sell those goods and trade with others.

Which of the following goods is likely to have the highest price elasticity of demand?

Pizza

Which of the following was not mentioned in the video as a driver of economic growth?

Product innovation Capital investment Correct: Increased demand Process innovation

________ occurs when the direction of cause and effect is mixed up in a study.

Reverse causality

Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Sales revenue decreased.

Economics is the study of

Scarcity and how societies deal with it.

Economics studies

Scarcity. The social institutions used to address scarcity. What to produce, how to produce it, and who gets it. Correct: All of the above.

The price of turkeys goes down at Thanksgiving even though demand increases because:

Supply increases by relatively more than demand because frozen turkeys are brought to market.

Which of the following statements is true?

Testing with data enables economists to distinguish between good models and bad models.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

The demand for Lincoln letters increases and the supply of Booth letters increases.

Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?

The elasticity coefficient is likely to be higher in the long run than in the short run.

Which of the following is a positive economic statement?

The government should implement a national consumption tax. Correct: If the price of beef falls, a larger quantity of it will be bought. The U.S. government should increase regulations on the banking industry. The standard of living in the United States is too low.

Which of the following is a positive economic statement?

The government should mandate electric automobiles. Foreign workers should not be allowed to work for lower wages than the citizens of a country. People should not buy SUVs. Correct: Scarcity necessitates that people make trade-offs.

Suppose there is a simultaneous increase in the demand for rice and increase in the supply of rice. Which of the following will occur as a result of these simultaneous events?

The market clearing price may rise, fall, or stay the same, but the equilibrium quantity will rise.

Suppose that you own a house. What is the opportunity cost of living in the house?

The opportunity cost is the rent you could have received from a tenant if you did not live there.

Which of the following statements correctly differentiates between the slope of the demand curve and price elasticity of demand along a linear demand curve?

The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve.

In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?

The supply curve shifts to the right.

When sellers sell goods in a market they are doing so because

The price is at least as much as the cost to produce.

Which of the following is NOT a normative economic statement?

The price of gasoline is too high. States should reduce the tax on heating fuel oil during the winter. Correct: Teenagers are responsible for most driving fatalities. People over the age of 75 should not be allowed to drive cars. We don't spend enough money on anti-smoking campaigns.

Adam Smith's book, the Wealth of Nations, investigated

The role of markets in determining economic efficiency.

n February, market analysts predict that the price of titanium will rise in March. What happens in the titanium market in February, holding everything else constant?

The supply curve shifts to the left.

"The recent hurricanes in Florida are bringing financial gain to California citrus growers. Due to extensive damage to the Florida citrus crop, California citrus products are commanding their highest prices ever." Which of the following statements best explains the economics of this quotation?

The supply of Florida oranges decreased, causing their price to increase, which then increased the demand for substitute California oranges.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week, the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?

There is a decrease in the supply of pool maintenance services.

Refer to Figure 3 -6. The figure above represents the market for canvas tote bags. Assume that the market price is $35. Which of the following statements is true?

There is a surplus that will cause the price to decrease; quantity demanded will then increase and quantity supplied will decrease until the price equals $25.

When buyers buy goods in a market they are doing so because

They value those goods at least as much as the price charged.

Which of the following statements is an example of positive economic analysis?

To ensure the highest graduation rates, colleges should limit enrollment. Correct: As tuition rates increase, fewer students are enrolling in college. Living in a dorm is too expensive and colleges should subsidize the cost of housing for their students. Universities should offer a wider variety of extracurricular activities to broaden the horizons of their student bodies.

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost.

True

The enjoyment or satisfaction people receive from consuming goods and services is called utility.

True

Which of the following is a positive economic statement?

U.S. citizens should only buy products which are produced in the United States. The government should ban the production and sale of incandescent light bulbs. The government should revamp its immigration policies. Correct: Raising the tax on gasoline raises the selling price of gasoline.

Which of the following statements is a positive statement?

We need to spend less on luxury items for the wealthy, and more on necessities for the less fortunate. Too many people are unemployed. There should be a computer in every elementary school classroom. Correct: Online shopping increased by 50 percent this Christmas season. Our country must increase military spending.

The three fundamental questions that must be answered by any economy include:

What to produce, how to produce goods, and who gets the goods.

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with markets.

Which of the following statements is CORRECT?

When supply increases, the quantity increases and the price falls.

Which of the following examples best describes the Law of Demand?

When the price of bread doubles, John's consumption of bread halves.

Which of the following examples best describes the Law of Demand?

When the price of tea increased, the quantity demanded of tea decreased.

Which of the following is NOT an economic question:

Why do we need more Blue Bell ice cream?

Which of the following is a normative economic statement?

With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased. Correct: Farmers should not be allowed to grow and sell genetically-modified crops. The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. Rising corn prices have increased the price of corn-based ethanol.

A change in the slope of a budget constraint indicates:

a change in the price of either good that causes a change in the opportunity cost.

Demand is unit elastic when

a change in the price of the product leads to no change in the total revenue.

A change in the slope of a budget line reflects:

a change in the relative prices of the two goods.

Production per day (Bushels): Pickers Apples Cherries Taylor 8 2 Jeff 6 3 14 5 Taylor has

a comparative advantage and an absolute advantage in picking apples.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption.

If enforcement is aimed at buyers of an illegal good, the result will be

a decrease in demand for the good.

Which of the following raises the equilibrium price and increases the equilibrium quantity of used cars?

a fall in income if used cars are an inferior good

An increase in the price of pineapples will result in

a larger quantity of pineapples supplied.

If a decrease in income leads to a decrease in the demand for mac and cheese, then mac and cheese is

a normal good.

Refer to Figure 3 -5. In a free market such as that depicted above, a surplus is eliminated by

a price decrease, decreasing the quantity supplied and increasing the quantity demanded.

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. Consider this new, post-hurricane situation under previous, pre-hurricane equilibrium price. We would expect to see:

a shortage of oranges.

A model refers to:

a simplified description, or representation, of reality.

Using Table 2 and Figure 2. If the price of tacos is $4 then P2, the price at which the second producer will begin producing enchiladas is

a. $3 b. $6 c. $8 d. $10 Correct: e. None of the above.

Cooks Pizzas Spaghetti Dishes Emily 30 20 Baily 25 10 55 30 The opportunity cost for Baily to prepare a pizza is

a. 0.5 b. 0.833 c. 1.2 d. 1.5 Correct: e. None of the above

The budget line is the boundary between

affordable and unaffordable consumption combinations

The figure above shows a consumer's budget line between sodas and DVD rentals. Point b represents an

affordable combination of sodas and DVDs that spends the entire budget.

The figure above shows a consumer's budget line between sodas and DVD rentals. Point c represents an

affordable combination of sodas and DVDs that spends the entire budget.

Which of the following is a process innovation?

airports smartphones Correct: self checkout lines Lasik eye surgery

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit

An increase in demand for laptop computers would likely be caused by

an increase in the price of a substitute good.

Economists assume that individuals

are rational and respond to incentives.

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

at least $125,000

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision?

at least $80,000

John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second go to a movie, third study for an economics exam, and fourth answer his e-mail. What is the opportunity cost of attending the concert for John?

attending a movie

Demand for a luxury item, such as a yacht, is likely to be

both income elastic and price elastic.

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

budget constraint

When supply increases and at the same time demand decreases, we

cannot predict equilibrium quantity, but know that equilibrium price will decrease.

Causation occurs when:

change in one variable is the reason for the change in another variable.

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.

cross- price elasticity; positive number

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye- surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

demand curve

When a government fines and/or imprisons persons convicted of using illegal drugs, the government is attempting to decrease the illegal drug trade by shifting the ________ curve for illegal drugs ________.

demand; leftward

Candy makers accurately anticipate the increase in demand for candy for Halloween so that the supply of candy and demand for candy increase the same amount. As a result, the price of candy ________ and the quantity of candy ________.

does not change; increases

If the marginal benefit of the next slice of pizza exceeds the marginal cost, you will

eat the slice of pizza.

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

economic growth.

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:

equal to 1.

The opportunity cost of going to an outdoor music festival is

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

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

If penalties are imposed only on the buyers of illegal drugs, the equilibrium price of illegal drugs will ________ and the equilibrium quantity will ________.

fall; decrease

When the demand for a good decreases, its equilibrium price ________ and equilibrium quantity ________.

falls; decreases

An item has utility for a consumer if it

generates enjoyment or satisfaction.

The buyers of a good will want to purchase it as long as their willingness to pay for the good is:

greater than or equal to the price.

Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family

hamburgers and chicken nuggets are substitutes.

An omitted variable is a variable that:

has been left out, and if included, would explain why the variables considered in a study are correlated.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

When economists use the term "correlation," they are referring to

how two variables move together in a predictable way.

If a good has a price elasticity of demand of - 3, it implies that:

if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%.

The budget line will shift parallel to the left if:

income decreases.

When a decrease in the price for wine increases Adam's real income, Adam will buy more of all normal goods. If wine is a normal good, then Adam will buy more wine due to

income effect.

Last year, Jack's income was $15,000 and he bought 50 bags of potato chips. This year his income is $18,000 and he buys 55 bags of potato chips. Therefore, Jack's

income elasticity of demand for potato chips is 0.52.

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

increase the quantity of education demanded by 14%.

If the population increases, the market demand for most products will

increase.

A production possibilities frontier with a bowed-outward shape indicates

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

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

inelastic.

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

inelastic.

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

inferior.

If demand is perfectly elastic, the absolute value of the price elasticity coefficient is

infinity.

Refer to Figure 3 -5 . At a price of $5, the quantity sold

is 2 units.

Refer to Figure 3 -5 . At a price of $10, the quantity sold

is 4 units

A supply schedule

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

A consumption point inside the budget line

is possible to afford but has some unspent income.

The equilibrium quantity of a good will increase and its equilibrium price might rise, fall, or stay the same when

its demand and supply both increase.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

its price.

Making the buying and selling of a good illegal shifts the demand curve ________ and shifts the supply curve ________.

leftward; leftward

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

linear

In economics, the term ________ means "additional" or "extra."

marginal

The extra cost associated with undertaking an activity is called

marginal cost.

The demand by all the consumers of a given good or service is the ________ for the good or service.

market demand

The slope of a production possibilities frontier

measures the opportunity cost of producing one more unit of a good.

When a government imposes penalties on both sellers and buyers of an illegal good, the price of the good ________ and the quantity ________.

might rise, fall, or not change; decreases

Higher price elasticity of demand means that a consumer's demand is:

more responsive to price changes.

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

people are rational.

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that

people respond to economic incentives.

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.

If firms do not increase their quantity supplied when price changes, then supply is

perfectly inelastic.

Suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers. The equilibrium price of beef will

perhaps rise, fall, or stay the same, but more information is needed to determine which it does.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot leftward (pivot in) along the vertical axis.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward (pivot out) along the horizontal axis.

A decrease in the price of either one or the other good will cause a consumer's budget constraint to:

pivot rightward (pivot out).

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

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.

The price elasticity of an upward-sloping supply curve is always

positive.

Total revenue equals

price per unit times quantity sold.

A budget line shows the

quantities of goods a buyer can purchase with given income and prices.

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.

An increase in demand combined with no change in supply

raises the equilibrium price.

The income effect of an increase in the price of salmon

refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.

If the price of a candy bar is $1 and the price of a fast food meal is $5, then the

relative price of a fast food meal is 5 candy bars per fast food meal.

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

relatively elastic.

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

relatively inelastic.

Vacations by plane are a normal good and people's incomes rise. At the same time, the price of jet fuel rises. The equilibrium price of a vacation flight ________ and the equilibrium quantity of vacation flights ________.

rises; might increase, decrease, or not change

Economists assume that people are motivated by

self-interest.

The supply curve for watches

shows the relationship between the price of watches and the quantity of watches supplied.

Economic models do all of the following except

simplify some aspect of economic life. answer economic questions. make economic ideas explicit and concrete for use by decision makers. Correct: portray reality in all its minute details.

Amy can study for an hour or spend that hour sleeping or going out for dinner. If she decides to study for the hour, the opportunity cost of the hour spent studying is

sleeping or going out for dinner, whichever she would have preferred the most.

When referring to "marginal" changes, the economic focus is on

small or incremental changes.

The law of demand states that, other things remaining the same, the higher the price of a good, the

smaller is the quantity of the good demanded.

Lily wants to maximize her benefit of consuming apples and bananas, given her fixed budget of $10 for these two fruits. The price of an apple is $1, and the price of a banana is $0.50. In order to derive Lily's demand curve for bananas, we need to ________.

solve the buyer's problem for her multiple times and find the optimal number of bananas, when price of a bananas is at a different level each time

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone

strawberries and whipped cream are complements.

After 2009, the price of tablets fell each year and manufacturers of tablets produced and sold more tablets each year. This result is because the

supply curve of tablets shifted rightward.

An opportunity cost is

the benefits of the highest-valued alternative forgone.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint.

The substitution effect of an increase in the price of peaches is

the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

If the price of a good increases, ________.

the consumer surplus decreases

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

the demand for aspirin is inelastic.

Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that

the demand for bottled water is elastic in the price range considered.

If a firm expects that the price of its product will be higher in the future than it is today, then

the firm has an incentive to decrease supply now and increase supply in the future.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

the income effect.

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

The slope of a demand curve is not used to measure the price elasticity of demand because

the measurement of slope is sensitive to the units chosen for price and quantity.

The opportunity cost of a decision is measured in terms of

the next best thing given up.

If Jessie studies economics for two hours instead of going to the movies with her friends, then

the opportunity cost of studying is the missed movie.

If the demand for a steak is unit elastic, then

the percentage change in quantity demanded is equal to the percentage change in price.

If the demand for cell phone service is inelastic, then

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

A correlation between two variables implies that:

there is a mutual relationship between both the variables.

The attainable production points on a production possibilities curve are

the points along and inside the production possibility frontier.

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.

Production per day (Bushels): Pickers Apples Cherries Taylor. 8 2 Jeff 6 3 14 5 The producer with the least opportunity cost of picking cherries is

the producer who gives up the fewest apples to pick a bushel of cherries.

The Law of Demand states that:

the quantity demanded of a commodity varies inversely with the price of the commodity.

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

the quantity of bagels demanded will decrease.

Elasticity is:

the ratio of the percentage change in two variables.

Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that

the resulting increase in price is proportionately greater than decrease in quantity sold.

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

the supply curve for oranges has shifted to the right.

If in the market for peaches the supply curve has shifted to the left

the supply of peaches has decreased.

If in the market for peaches the supply curve has shifted to the left,

the supply of peaches has decreased.

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that

the supply of swimming pool maintenance services has decreased.

When buyers and sellers operate in a competitive market, it is because

the value to consumers is at least as great as the cost to produce.

In terms of dollars, the marginal benefit of working five days a week instead of four days a week is

the wages received for the fifth day of work.

Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Assume that the price of tote bags is $15. At this price

there is a shortage, equal to 55 tote bags, that will be eliminated when the price rises to $25.

Refer to Figure 3 -4. If the price is $10,

there would be a shortage of 600 units.

Refer to Figure 3 -5. At a price of $15

there would be a surplus of 4 units.

Consumers determine what gets made in the economy because

they buy things they like.

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

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

The figure above shows a consumer's budget line between sodas and DVD rentals. Point d represents an

unaffordable combination of sodas and DVDs.

In economics, another term for satisfaction is

utility.

Normative economic analysis involves

value judgments and opinions.

Scarcity means that

wants are greater than what we can produce with our resources.

Economists assume that rational people do all of the following except

weigh the benefits and costs of all possible alternative actions. use all available information as they act to achieve their goals. respond to economic incentives. Correct: undertake activities that benefit others and hurt themselves.

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued.

The opportunity cost of an activity is

what you sacrifice to engage in the activity.

If the demand for a product is perfectly inelastic, a decrease in the price of the product

will decrease total revenue.

On Saturday morning, you rank your choices for activities, from most preferred to least preferred, in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is

working out at the gym.