Answers from Quizzes FOR REVIEW

Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is: (Figure 2-1 showed a ppf with points A, B, C, D on the line, E above the line, and F and G below the line)

All points on the production possibilities frontier are equally efficient.

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

budget constraint

Refer to Table 5-1. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D1 to D2, then: Price D1 D2 S1 S2 12 5 9 19 14 10 8 12 17 12 8 11 15 15 10 6 13 18 13 8 4 16 21 11 6 2 18 24 9 4

equilibrium price increases from $6 to $8

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to

fall and the equilibrium quantity to stay the same.

The circular flow diagram of economic activity is a model of the

flow of goods, services, and payments between households and firms.

In the _________, households receive goods and services and pay firms for them.

goods and services market

In a command economy, the ________ either makes most economic decisions itself or at least strongly influences how the decisions are made.

government

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves _____spending.

government

A perfectly elastic supply curve is

horizontal.

The longer the time period considered, the more the elasticity of supply tends to

increase

If the demand curve is perfectly elastic, then an increase in supply will

increase the quantity exchanged but result in no change in the price.

If the demand for software engineers __________ slower than does supply, then wages of software engineers will.

increases; fall

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise

increasing the price of game tickets because demand is inelastic.

Demand is said to be _______ when the quantity demanded is not very responsive to changes in price.

inelastic

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be _______ .

inelastic

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _______ .

inelastic

Taxes on goods with _______ demand curves will tend to raise more tax revenue for the government than taxes on goods with _______ demand curves.

inelastic; elastic

Attending college is a case where the ________________ exceeds the monetary cost.

opportunity cost

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

opportunity set

The elasticity of supply is defined as the _______ change in quantity supplied divided by the change in price. The elasticity of supply is defined as the _______ change in quantity supplied divided by the _______ change in price.

percentage; percentage

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in _______ .

price

In contrast to goods and services markets,__________ are rare in labor markets, because rules that prevent people from earning income are not politically popular.

price ceilings

The downward slope of the demand curve again illustrates the pattern that as ________ rises, ________ decreases.

price, quantity demanded

A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ________, shown on the horizontal axis.

quantity

________ refers to the total number of units that are purchased at that price.

quantity demanded

When economists talk about supply, they are referring to a relationship between price received for each unit sold and the ________.

quantity supplied

The price elasticity of demand measures the

responsiveness of quantity demanded to a change in price.

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to

rise and the equilibrium quantity to stay the same.

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to

stay the same and the equilibrium quantity to fall.

A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the ________.

supply curve to the right

In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers?

the macroeconomy

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

utility

The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.

utility

If labor demand is downward sloping and labor supply is upward sloping, then when labor demand rises faster than labor supply, it is expected that real wages __________ .

will increase

Refer to Table 5-1. If D2 and S1 represent the demand and supply schedules in a particular market, then the equilibrium price and quantity are ________ and ________, respectively. Price D1 D2 S1 S2 12 5 9 19 14 10 8 12 17 12 8 11 15 15 10 6 13 18 13 8 4 16 21 11 6 2 18 24 9 4

$8; 15

In 2010, Americans had about __________ outstanding in credit card debts not paid on time.

$900 billion

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

1.0

In the United States, a typical credit card interest rate ranges from __________ per year.

12% to 18%

Referring to Table 2-1: A student has only a few hours to prepare for two different exams this afternoon. The above table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is: Possibility A Economics History I 94 76 II 87 84 III 77 91

15 points on the history exam.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal

5 units.

Refer to Table 2-1. A student has only a few hours to prepare for two different exams tomorrow morning. The above table shows alternative possible exam outcomes with three alternative uses of the student's time. The opportunity cost of scoring an 84 on the history exam rather than 76 is: Possibility A Economics History I 94 76 II 87 84 III 77 91

7 points on the economics exam

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect

Andy's demand for beer to increase.

Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from: (Figure 2-1 showed a ppf with points A, B, C, D on the line, E above the line, and F and G below the line)

C to F

_______ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).

Elasticity

Are markets always in equilibrium?

No, but if there is no outside interference, they tend to move toward equilibrium.

________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

Price floors

Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The statement is correct.

Which of the following results in a rightward shift of the market demand curve for labor?

an increase in demand for the firm's product

The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to

a sharp increase in the demand for and construction of wood-frame homes.

Which of the following lies primarily within the realm of macroeconomics?

a study of how tax cuts stimulate aggregate production

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of

buyers and sellers.

When demand is inelastic

consumers are not very responsive to changes in price.

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that

cross-price elasticity of demand for iced tea is 2.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that

cross-price elasticity of demand for soda is -3.

The labor __________ curve(s) will shift __________ if there is an increase in productivity or an increase in the demand for the final product.

demand; right

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

diminishing marginal utility

Demand is said to be _______ when the quantity demanded is very responsive to changes in price.

elastic

Supply is said to be _______ when the quantity supplied is very responsive to changes in price.

elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as _______ .

elastic

Youth smoking seems to be morethan adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

A price cut will increase the total revenue a firm receives if the demand for its product is

elastic.

Which of the following is generally accepted as a valid criticism of the production of useful goods and services?

environmental pollution

If the supply curve for a product is horizontal, then the elasticity of supply is

equal to infinity.

If the supply curve for a product is vertical, then the elasticity of supply is

equal to zero.

A demand or supply curve with _______ would be horizontal in appearance.

infinite elasticity

Which of the following best describes a monetary policy tool?

interest rates

In the __________, households work and receive payment from firms.

labor market

Other things being equal, a __________ supply of workers tends to __________ real wages.

larger; decrease

If a firm faces ________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.

lower costs of production

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume

macaroni is an inferior good and price elasticity of supply is infinite.

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

The marginal benefit of a slice of pizza is the

maximum amount that a consumer is willing to pay for the slice.

Price elasticity of demand is defined as

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

Price elasticity of demand is defined as:

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

Macroeconomic topics do not usually include

the profit maximizing decisions of an individual manufacturer.

If new manufacturers enter the computer industry, then (ceteris paribus)

the supply curve shifts to the right.

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of

the supply curve.

If cola and iced tea are good substitutes for consumers, then it is likely that

their cross price elasticities are greater than zero.

According to the law of supply

there is a direct relationship between price and the quantity supplied.

When quantity demanded decreases in response to a change in price

there is a movement up along the demand curve.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result

total revenue will decrease.

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

unemployed people

Demand is said to be _______ when the quantity demanded changes at the same proportion as the price.

unit elastic

But nearly all supply curves share a basic similarity: they slope ________.

up from left to right