Test 1 (chp 1-4)

price elasticity of demand

% change in quantity demanded/ % change in price Q/P

income elasticity of demand

% change quantity/ % change income (Q1-Q2/ Qave) / (I1-I2/ Iave)

If the price of a movie ticket increases by 4 percent and the quantity of movies demanded falls by 2 percent, the price elasticity of demand is

.5

In the production possibilities frontier depicted in the figure above, what is the opportunity cost of increasing the production of bananas from two million pounds to three million pounds?

1 hat per pound of banana

The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. What was the opportunity cost of your evening at the movies?

10% off of your grade

Puerto Rico is producing 4 units of seafood and 6 units of pharmaceuticals. For Puerto Rico, the opportunity cost of producing an additional unit of pharmaceuticals is

2/3 unit of seafood per unit of pharmaceuticals.

The price of a pizza is $12 per pizza and the price of a taco is $2 per taco. The relative price of a pizza is

6 tacos per pizza

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following statements is CORRECT?

Homer has an absolute advantage in both catching fish and picking fruit.

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. If these two states were to engage in trade, which of the following is TRUE?

Missouri would specialize in pecan production and trade pecans to Washington for pears.

Opportunity cost is defined as the

The highest-valued alternative that must be given up

In the above figure, a price of $15 per dozen roses would result in a ________ so that the price of roses will ________.

When the price is lower than the equilibrium price, quantity demanded is greater than quantity supplied, creating a shortage; Market forces increase the price to erase a shortage shortage, rise

The principle of increasing opportunity cost leads to what event in the PPF

a production possibilities frontier (PPF) that is bowed outward from the origin.

. The figure above shows Roger's production possibilities frontier. Point a is an ________ point and at that point production is ________.

attainable, inefficient

Cupcakes and granola bars are substitutes in consumption. The price of a granola bar increases so the demand for

cupcakes will increase, that is, the demand curve will shift rightward.

A decrease in the expected future price of cars

decreases the current demand for cars, that is, there is a leftward shift of the demand curve for cars.

The law of demand concludes that a rise in the price of a golf ball ________ the quantity demanded and ________.

decreases; creates a movement up along the demand curve for golf balls

The above figure shows the market for oil. Because of the development of a new deep sea drilling technology the

demand curve does not shift, and the supply curve shifts from S1 to S2.

opportunity cost as ratio

gains/ cost

A person who has an absolute advantage in the production of all goods will

have a comparative advantage in the production of some goods but not in the production of others.

If the cross elasticity of demand between hot chocolate and tea is positive, an increase in the price of tea will shift the demand curve for

hot chocolate rightward

All economic questions are about

how to cope w scarcity

Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is ________.

income, negative When goods are inferior, there is a negative relationship between changes to income and demand for these goods

If demand for Farmer John's maple syrup is inelastic, then when Farmer John raises the price of maple syrup, his total revenue will

increase When demand is inelastic, consumers do not respond strongly to price changes; By the total revenue test we know that when demand is inelastic, increases to the price of the good increase total revenue

An increase in the number of fast-food restaurants

increase in the supply of fast-food meals An increase in the number of suppliers, increases the supply of a good or service

The elasticity of supply equals ______ if the supply curve is horizontal.

infinity when the supply curve is horizontal, supply is perfectly sensitive to changes in price or infinitely sensitive

Perfectly elastic demand is represented by a demand curve that

is horizontal

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. This is one of the 8 equilibrium predictions we can make with the supply and demand model; when both demand and supply increase, equilibrium quantity will definitely increases, but the change in price is ambiguous.

Because there are _____ substitutes available for fruit than for bananas, the price elasticity of demand for fruit is _____ elastic than the price elasticity for bananas.

less, less

A fall in the price of wheat fertilizer ________ the equilibrium price of wheat and ________ the equilibrium quantity of wheat.

lower, increase When factors of production are cheaper, supply increases, increasing equilibrium quantity and lowering equilibrium price

The study of the choices made by individuals is part of the definition of

microeconomics

The cross elasticity of demand for pizza with respect to the price of a soda is

negative because the goods are complements

If the price of a song download is equal to the equilibrium price, there will be ________ of song downloads and the price will ________.

neither a shortage nor surplus; not change

"The rich should pay higher income tax rates than the poor" is an example of a

normative statement

The statement "An increase in the price of gasoline will lead to a decrease in the amount purchased" is A) a political statement.

positive statement

Elasticity measures the

responsiveness of a variable to a change in another variable.

Good A and good B are substitutes in production. The demand for good A increases so that the price of good A rises. The increase in the price of good A shifts the

supply curve of good B leftward C, Firms will start producing more of A because of the higher demand; Because A and B use the same resources in production, the supply of B will decrease

During the last decade, the price of a computer fell every year and the quantity sold increased every year. This experience suggests that the

supply curve shifted rightward When supply increases, equilibrium price falls and equilibrium quantity increases

If the price of oil is $60 per barrel, the quantity of oil supplied is 70 million barrels per day. If the price is $40 per barrel, the quantity of oil supplied is 69 million barrels per day. This implies that the

supply of oil is inelastic

Comparative advantage is

the ability to perform an activity at a lower opportunity cost than anyone else.

When the price of a pizza decreases from $14 to $12

the income effect points out that the total purchasing power of people who buy pizza increases.

A fall in the price of a good causes producers to reduce the quantity of the good they are willing to produce. This fact illustrates

the law of supply.

All shredded wheat producers have decided to add a new ingredient to shredded wheat, the "crunch enhancer." Crunch enhancer keeps cereals crisper longer in milk and, as a result, consumers decide they like shredded wheat more than before. What happens to the supply and demand curves for shredded wheat now that is costs more to produce and consumers like it better?

the supply and demand curve both shift rightward.

Scarcity guarantees that

wants will exceed demands Scarcity implies that we cannot satisfy all of our wants; In order to demand a good or service, we must want the good or service AND be able to afford it; Since we can't afford everything wewant, wants will exceed demands