Combo with "Microeconomics" and 27 others
which of the following constitutes an important difference between doctors' private practices and other small businesses, such as restaurants and head ware stores?
payments are rarely received directly from the immediate customers costly Paperwork is necessary to secure payments for services rendered price (or rates) are set externally
B
"An increase in supply decreases equilibrium price. The decrease in price increases demand." This statement is A- false, increases in supply decrease price B- false, decreases in price affect the quantity demanded, not demand C- false, increases in supply increase price. Decreases in price increase demand D- true, increases in supply decrease price. Decreases in price increase demand
Normative statement - the statement is concerned with what should be.
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a: (1) Normative statement - concerned with what should be (2) Positive Statement - concerned with what is
Ceteris Paribus
"all else equal" The requirement that when analyzing the relationship between two variables - such as price and quantity demanded- other variables must be held constant
positive analysis
"what is" economics, which measures the cost and benefits of different courses of action
Which of the following is not a factor of production
$1000 in cash
if your tuition is $20000 this semester, your books cost $1000, you can only work 20 rather than 40 hours per week during the 15 weeks you are taking classes and you make $10 per hour, and your room and board is $5000 per semester, what is your opportunity cost of attending college this semester?
$24,000
Suppose you have purchased a non-refundable plane ticket and, at the last moment, you cannot take the trip. You can, however, sell the ticket. If you paid $700 for the ticket, the cost of sending the ticket to someone through overnight mail is $20, and you spend $10 on a courier to get the ticket to the post office for overnight delivery, what is the minimum you should accept for the ticket? a. $700 because that is what the ticket cost. b. $720 because that is the cost of the ticket and of getting it to the buyer. c. $730 because that is the total cost of the ticket and getting it to the buyer. d. More than $730, so that you can make a profit. e. $30 because the $700 is a sunk cost.
$30 because the $700 is a sunk cost.
The formula for a percentage change of a variable over time (or growth rate) is:
((Value2- Value1) / Value1 ) X100
percentage change formula
((y2-y1)/y1) x 100
Which of the following is the correct definition of demand curve? a. The quantity of a good or service that a consumer is willing to purchase at a given price. b. A table showing the relationship between the price of a product and the quantity of the product demanded. c. A curve that shows the relationship between the price of a product and the quantity of the product demanded. d. The demand for a product by all the consumers in a given geographical area.
c. A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Which of the following is the textbook's definition of supply curve? a. The quantity of a good or service that a firm is willing to supply at a given price. b. A table that shows the relationship between the price of a product and the quantity of the product supplied. c. A curve that shows the relationship between the price of a product and the quantity of the product supplied. d. None of the above
c. A curve that shows the relationship between the price of a product and the quantity of the product supplied.
1. What is the cost that affects someone who is not directly involved in the production or consumption of a good called? a. Private cost b. Indirect cost c. An externality d. All of the above fit that definition
c. An externality
13. What are the sources of externalities and market failure? a. Incomplete property rights b. The difficulty of enforcing property rights in certain situations. c. Both a. and b. d. Lack of understanding of the market system
c. Both a. and b.
Fill in the blanks. In a simple circular flow model, there are flows of _________ and flows of _________. a. factors of production; goods and services b. funds received from the sale of factors of production; spending on final goods and services c. Both of the above are correct. d. None of the above. Actually, there are no flows in the circular flow of income.
c. Both of the above are correct.
When the price of a digital music players rises, the quantity of digital music players demanded by consumers falls. According to this statement, what do we call the demand curve for digital music players? a. Unpredictable b. Upward sloping c. Downward sloping d. An exception to the law of demand
c. Downward sloping
Suppose that the income of buyers in a market increases and a technological advancement also occurs. What would we expect to happen in the market for a normal good? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase.
c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
According to Adam Smith, which of the following is necessary for the proper functioning of the market system? a. For markets to work, people should take into account how their decisions affect society as a whole. b. For markets to work, government should help citizens make the right decisions. c. For markets to work, people must be free to pursue their self-interest. d. For markets to work, people and government need to coordinate their decisions.
c. For markets to work, people must be free to pursue their self-interest.
Which of the following comprises the two key groups of participants in the circular flow of income? a. Product markets and factor markets b. Government and the financial sector c. Households and firms d. Buyers and sellers
c. Households and firms
Which of the following is an example of a positive question? a. Should the university offer free parking to students? b. Should the university provide more financial aid assistance to students? c. If the college increased tuition, will class sizes decline? d. Should the college cut tuition to stimulate enrollments?
c. If the college increased tuition, will class sizes decline?
In what type of economy does the government decide how economic resources will be allocated? a. In a market economy b. In a mixed economy c. In a centrally planned economy d. In none of the above
c. In a centrally planned economy
In which markets are factors of production, such as labor, capital, natural resources, and entrepreneurial ability traded? a. In product markets b. In essential markets c. In factor markets d. In competitive markets
c. In factor markets
According to Adam Smith, which of the following is true? a. Markets work because producers, aided by government, ensure that neither too many nor too few goods are produced. b. Market prices can come to reflect the prices desired by all consumers. c. Individuals usually act in a rational, self-interested way. d. All of the above.
c. Individuals usually act in a rational, self-interested way.
In Solved Problem 1-1: "Should Apple produce an additional 300,000 iPods?" which of the concepts below is most applicable in solving the problem? a. The concept of what a market is b. Rational behavior and how people respond to economic incentives c. Marginal analysis d. The concept of scarcity and tradeoffsWhich of the
c. Marginal analysis
What type of economic analysis is concerned with the way things ought to be? a. Positive analysis b. Marginal analysis c. Normative analysis d. Rational behavior
c. Normative analysis
What are patents and copyrights designed to do? a. Prevent entrepreneurs from earning excessive profits. b. Eliminate unnecessary duplication whenever it arises. c. Protect intellectual property rights. d. All of the above
c. Protect intellectual property rights
Which of the following is the definition of marginal cost? a. The additional benefit to a consumer from consuming one more unit of a good or service. b. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. c. The additional cost to a firm of producing one more unit of a good or service. d. The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
c. The additional cost to a firm of producing one more unit of a good or service.
Which of the following is the definition of consumer surplus? a. The additional benefit to a consumer from consuming one more unit of a good or service. b. The additional cost to a firm of producing one more unit of a good or service. c. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. d. The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
c. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Which of the following best describes how changes in price affect a consumer's purchasing power? a. The law of demand b. The substitution effect c. The income effect d. The term ceteris paribus
c. The income effect
Which of the following explains why there is an inverse relationship between the price of a product and the quantity of the product demanded? a. The substitution effect b. The income effect c. The law of demand d. The price effect
c. The law of demand
What is the law of demand? a. The law of demand states that a change in the quantity demanded, caused by changes in price, makes the good more or less expensive relative to other goods. b. The law of demand states that a change in the quantity demanded, caused by changes in price, affects a consumer's purchasing power. c. The law of demand states that, holding everything else constant, when the price of good falls, the quantity demanded will increase, and vice versa. d. The law of demand is the requirement that when analyzing the relationship between price and quantity demanded, other variables must be held constant.
c. The law of demand states that, holding everything else constant, when the price of good falls, the quantity demanded will increase, and vice versa.
When a competitive market is in equilibrium, what is the economically efficient level of output? a. Any output level where marginal benefit is greater than marginal cost. b. Any output level where marginal cost is greater than marginal benefit. c. The output level where marginal cost is equal to marginal benefit. d. Any of the above; any output level can be efficient or inefficient.
c. The output level where marginal cost is equal to marginal benefit.
What does the term quantity demanded refer to? a. The total amount of a good that a consumer is willing to buy per month. b. The quantity of a good or service demanded that corresponds to the quantity supplied. c. The quantity of a good or service that a consumer is willing and able to purchase at a given price. d. None of the above.
c. The quantity of a good or service that a consumer is willing and able to purchase at a given price.
Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction? a. Productive efficiency b. Allocative efficiency c. Voluntary exchange d. Equity
c. Voluntary exchange
Which of the following is not among the fundamental economic questions that every society must solve? a. What goods and services will be produced? b. How will the goods and services be produced? c. What goods and services will be exchanged? d. Who will receive the goods and services produced?
c. What goods and services will be exchanged?
A surplus exists in a market if the actual price is a. equal to equilibrium price. b. below equilibrium price. c. above equilibrium price. d. either above or below the equilibrium price.
c. above equilibrium price.
Human capital is similar to physical capital because a. both represent the value of money as a productive resource. b. both are financed by the profits of firms. c. both are productive resources. d. both represent changes in technology.
c. both are productive resources.
If a country has a comparative advantage in the production of a good, then that country a. also has an absolute advantage in producing that good. b. should allow another country to specialize in the production of that good. c. has a lower opportunity cost in the production of that good. d. All of the above
c. has a lower opportunity cost in the production of that good.
36The term tax incidence refers to a. the type of product the tax is levied on. b. the amount of revenue collected by the government from a tax. c. the actual division of the burden of a tax. d. the actual versus the desired impact of a tax burden.
c. the actual division of the burden of a tax.
Which of the following is counted as "capital" in economics? a. the wealth people have b. the money people have c. the machines workers have to work with d. the accumulated skills and training workers have
c. the machines workers have to work with
If taxi cab drivers were no longer required to obtain one of a restricted number of licenses to operate, it is likely that:
cab fares would decrease and more taxis would be available.
McDonalds distribute $1.00 of coupons this will do what to the demand curve
cause it to move along the curve because its a change in price
Consumer income is one variable that will
cause the demand curve to shift
Which of the following is a characteristic of a pure command economy? a. all resources are privately owned b. economic activity is coordinated by the price system c. competitive markets guide resources to their highest-valued uses d. centralized economic planning is used to answer the basic economic questions e. economic choices are voluntary and are based on rational self-interest
centralized economic planning is used to answer the basic economic questions
Characterized by extensive government decision making.
centrally planned economy
movement along the demand curve for toothpaste would be caused by
change in the price of toothpaste.
marginal revenue
change in total revenue from selling one more unit
main sources of comparative advantage
climate + natural resources, relative abundance of labor and capital, technology, external economies
Which of the following statements would you expect to be true about price elasticities of demand for T-shirts and clothing?
clothing has a lower price elasticity of demand because it is more broadly defined
The basis for trade is
comparative advantage
basis for trade
comparative advantage
from an economics perspective, to determine whether to serve breakfast all day, McDonalds should....
compare the marginal revenue from serving breakfast all dat with the marginal cost of serving breakfast all day
Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root beer are
complements, with a cross price elasticity of -2.0
positive analysis
concerned with "what is" ie gas prices are $4 a gallon
normative analysis
concerned with "what ought to be" ie what prices should gas be?
Health insurance companies deal with asymmetric info problems by
conducting their own medical exams, agreeing to pay only a percentage of any claim, limiting the coverage of pre exsisting conditions
A vaiable that will cause the demand curve will shift
consumer income
"when there is a shortage of a good......
consumers compete against one another by bidding the price upward
When there is a shortage of a good
consumers compete against one another by bidding the price upward
when there is a shortage of a good
consumers compete against one another by bidding the price upward
Which of the following have their profits taxed twice? a. sole proprietorships b. partnerships c. corporations d. nonprofit institutions e. S-corporations
corporations
If there is a shortage of a good it must be scarce but there is not a shortage of every scarce good. agree or disagree?
correct bc every good (except undesirable things) is scarce.
Producer surplus will equal the total revenue received by firms from selling a product in the special case when
cost is zero
Negative externalities are:
costs incurred by individuals other than buyers and sellers.
Joe installs a rain water collection barrel system at the back of his house hidden behind a row of bushes. This is most likely an example of
creating a positive externality for others.
Joe installs a rain water collection barrel system at the back of his house hidden behind a row of bushes. This is most likely an example of:
creating a positive externality for others.
16. Which of the following is correct? a. Completely eliminating an externality is usually not economically efficient. b. As reductions in pollution increase, the additional benefits will decline. c. When levels of pollution are high, the marginal benefit of reducing pollution is also high. d. All of the above
d. All of the above
35When the government imposes price floors or price ceilings, which of the following occurs? a. Some people win b. Some people lose c. There is a loss of economic efficiency d. All of the above
d. All of the above
What is the role of an entrepreneur? a. To operate a business that produces a good or service. b. To bring together the factors of production—labor, capital, and natural resources. c. To take risks. d. All of the above
d. All of the above
What types of economies require that we answer the questions of what, how, and for whom to produce goods and services? a. Market economies b. Centrally planned economies c. Mixed economies d. All of the above
d. All of the above
Which of the following would create economic growth, that is, shift the production possibilities frontier outward? a. An increase in the available labor. b. An increase in technology that affects the production of both goods. c. An increase in the available natural resources. d. All of the above
d. All of the above
Which of the following terms corresponds to a market in which buying and selling takes place at prices that violate government price regulations? a. Price conspiracy b. Scalping c. Competitive market d. Black market
d. Black market
When analyzing the relationship between the price of a good and quantity demanded, other variables must be held constant. Which term best describes such an assumption? a. The law of demand b. The substitution effect c. The income effect d. Ceteris paribus
d. Ceteris paribus
Which of the following best describes the characteristics of models used in economics? a. Models are approximations to reality that capture as many details as possible. b. Models are usually complex abstractions of reality that simulate practical problems. c. Models are demonstrations of how economic concepts and theories accurately predict real situations. d. Models are simplifications of reality that include only essential elements and exclude less relevant details.
d. Models are simplifications of reality that include only essential elements and exclude less relevant details.
Which of the following is not an essential component of an economic model? a. Assumptions b. Hypotheses c. Variables d. Normative statements
d. Normative statements
Which of the following questions can be answered using normative economic reasoning? a. If the college offers free parking, will more students drive to campus? b. If the college provided more financial aid, would more students go to college? c. If the college hires better qualified instructors, will more students attend? d. Should the college cut tuition in order to stimulate enrollments?
d. Should the college cut tuition in order to stimulate enrollments?
Which of the following is the correct definition of market demand? a. The quantity of a good or service that a consumer is willing to purchase at a given price. b. A table showing the relationship between the price of a product and the quantity of the product demanded. c. A curve that shows the relationship between the price of a product and the quantity of the product demanded. d. The demand by all the consumers for a given good or service.
d. The demand by all the consumers for a given good or service.
Which of the following is the definition of producer surplus? a. The additional benefit to a consumer from consuming one more unit of a good or service. b. The additional cost to a firm of producing one more unit of a good or service. c. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. d. The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
d. The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
An early frost in the apple orchards of Washington State would cause a. an increase in the demand for apple juice, increasing price. b. an increase in the supply of apple juice, decreasing price. c. a decrease in the demand for apple juice, decreasing price. d. a decrease in the supply of apple juice, increasing price.
d. a decrease in the supply of apple juice, increasing price.
Fill in the blanks. In economics, as well as in life, optimal decisions are made _____________. a. once all costs have been considered b. only when all benefits have been considered c. in their totality d. at the margin
d. at the margin
if teachers put too much weight in the grading scales of a certain part of the course, like reading outside the textbook students might respond by _____ other parts of the course
de-emphasizing
If teachers put too much weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by............other parts of the course.
de-emphasizing.
If marginal cost is greater than marginal benefit (just as when marginal benefit is greater than marginal cost), there will be
deadweight loss
With the tax being collected from the buyers instead of the producers, the new eqlbrm price would pay the producers will
decrease
If car prices increased then the demand for gas would
decrease.
As the price of a good falls producer surplus
decreases
As the price of a good rises consumer surplus
decreases
IF the price of vanilla ice cream decreases, it is likely that a. demand for vanilla ice cream will increase b. demand for vanilla ice cream will decrease c. demand for chocolate ice cream will increase d. demand for chocolate ice cream will decrease e. the quantity demanded of vanilla ice cream will decrease
demand for chocolate ice cream will decrease
If taxes were collected from the buyers of cigarettes the graph would differ from the one shown here bc
demand shift down by the tax per pack instead of supply shifting up by the tax per pack.
Consumer surplus
difference between what you are willing to pay and the price set
Producer surplus
difference in the price received and the marginal cost (difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives)
A lower price on a market always increases the economic efficiency in that market....
disagree.. bc economic efficiency declines if prices falls below the market eqlbrm.
What would shift a PPF outward
discovering a cheap way to convert sunshine into energy
Tax incidence is the
division of a tax burden between the buyer and the seller
If a negative externality results from the refining of oil, the cost of production as seen by the oil refin-ery:
does not include the external cost.
Consumer surplus (and producer surplus) could increase by decreasing ______ ______.
economic efficiency
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extending periods of paid family leave from work and, consequently, the birthrate per woman increases. If so, then this could best be characterized as an example of people responding to
economic incentives
"the problem with economics is that is assumes that consumer and firms always make the correct decision, but we know that everyone makes mistakes" What is the most correct response to this statement?
economics assumes that consumers and firms are rational, not that they always make the right decisions
what of the following statements about economics as a social science is correct?
economics studies the actions of individuals
Economic model
economists develop these models to analyze real world issues 1. decide on assumptions 2. hypothesis (casual relationship) 3. use data to test hypothesis 4. revise model if it fails to explain economic data well 5. retain the revised model to help answer future questions Models are simplifications of reality that include only essential elements and exclude less relevant details. Any model is based on making assumptions because we cannot analyze an economic issue unless we reduce its complexity and models have to be simplified to be useful
If there is unemployment in the economy, then the
economy is producing at a point inside the production possibilities frontier
An externality is present whenever:
either c. or d. occurs.
The role private property rights play in the working of the market system
encourage a significant number of people to be willing to risk funds by investing them in a business. As well as encourage firms to spend money on research and development.
Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) the economy enters a recession (which decreases consumers' income). An economist would predict with certainty that a. equilibrium quantity will rise b. equilibrium quantity will fall c. equilibrium price will rise d. equilibrium price will fall e. the equilibrium price will remain the same
equilibrium price will fall
if market economies are more economically efficient than centrally planned economies, there still might be a reason to prefer having centrally planned economy if its more____
equitable
Scarcity is important to economics because..
every chocies involves an opportunity cost
Scarcity is central to the study of economics because is implies that
every choice involves an opportunity cost.
scarcity is central to the study of economics because it implies that..
every choice involves an opportunity price
allocative efficiency means that....
every good and service is produced up to the point where marginal benefit is equal to marginal cost
allocative efficiency
every good or service is produced up to the point where marginal benefit is equal to marginal cost
Allocative effeciency means that..
every good or service is produced up to the point where the marginal benefit is equal to the marginal cost
The public health movement in the United States in the late 19th and early 20th centries was like a technological advance to the country's PPF, since both _______ the economy's productive capacity, the former by increasing the nation's _______ ________.
expanded; effective workforce
firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the latter tend to be healthier and consequently
experience lower rates of absenteeism and early retirement more productive at work less costly to insure and therefore emily due to their lower claim submission rate
what do economists mean by the word "margin"
extra or additional
economists use the word marginal
extra or additional benefit of a decision
why might consumers not act rationally?
fail to ignore sunk costs
If San Francisco were to repeal its rent control law, the prices for short rentals in the city listed on Airbnb and other peer-to-peer sites would likely
fall because more housing units would become available as the average rent increased.
if demand is inelastic and the price falls, the total revenue
falls
economists assumer that the only reason people take the actions they do is in response to economic incentives
false
The two main categories of participants in markets
firms and households
in a market system, what determines how goods and services will be produced?
firms determine how goods and services will be produced
The idea of the invisible hand is
firms will provide consumers what they want without the governement. Acting in self interest
To develop a model that will answer economic questions, economists typically..
first make simplifying assumptions, then formulate a hypothesis, test the hypothesis, and finally revise the model if necessary
North Korea is NOT a
free market
The oil supply curve would shift to the RIGHT if
future oil prices were expected to be lower (because price decreases are what cause the supply curve to shift)
Households act as demanders when they demand a. that corporate executives and government officials be held accountable for their actions b. dividends from the stocks they hold c. interest and capital gains from the bonds they hold d. goods and services from firms and the government e. payment for the goods and services they sell to firms and governments
goods and services from firms and the government
Substitutes
goods and services that can be used for the same purpose
equity
goods are distributed in a way that is fair
efficiency
goods are distributed in a way that maximizes benefits to society
Giffen goods
goods that violate the law of demand (is a inferior good where income effect is greater than the substitution effect)
term capital
goods used to produce other goods
centrally planned economies allocate resources baed on decisions by ______, while market economies answer these questions through decisions made by_____
governments households and firms
The law of comparative advantage states that the person who should produce a good is the person who a. has the lowest opportunity cost of producing that good b. can produce that good using the fewest resources c. will produce that good using the most expensive resources d. has the most desire for that good e. has produced that good in the past
has the lowest opportunity cost of producing that good
Stricter laws to protect intellectual property rights will
help create a more successful market system
Economists define Economic Efficiency this way to
help policy makers understand the negative consequences of taxes, price ceilings, & price floors and to illustrate the benefits of a competitive market equilibrium.
If unregulated, the market for cigarettes would produce a quantity that is too ____ at a price that is too ____ when compared to the socially optimal results.
high; low
opportunity cost
highest valued alternative that must be given up to engage in an activity
The main sources of health insurance in the US include
household co-operatives, or co-ops
microeconomics is the study of
how households and firms make choices, how they interact in marker and hoe the governments attempts to influence their choices
price elasticity of demand measures
how responsive quantity demanded is to a change in price
Technology
how we can combine our resources (inputs) to produce an output, A firm's processes to produce goods and services are called
tax incidences
how we share taxes, division of the burden between buyers and sellers
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.
a deadweight loss is created
if for the last unit produced, its marginal cost is greater than its marginal benefit, or its marginal benefit is greater than its marginal cost
the production possibilities frontier will shift outward
if resources are used to produce capital goods
production possibilities frontier will shift outward
if technological advantages occur
Does an increase in economic surplus in a market always mean that economic efficiency in the market has increased?
if the marginal cost of production decreases but market output remains unchanged, then economic surplus and deadweight loss would both increase, decreasing economic efficiency
When are private solutions possible and efficient?
if there are low transactions costs
According to economists, an efficient tax is one that
imposes a small deadweight loss relative to the tax revenue it raises
According to economist, efficient tax is one that
imposes a small deadweight loss relative to the tax revenue it raises.
According to economists, an efficient tax is one that
imposes a small excess burden relative to the tax revenue it raises.
Increases in a country's income can improve health by
improving food distribution, accelerating medical research, improving sanitary conditions
which of the following is a correct statement about a mixed economy?
in a mixed economy, most economic decisions are make in market but the government plays a big role in the allocation of resources
Black markets may arise
in reaction to binding price ceilings
Black market may arise
in reaction to binding price ceilings.
Black markets may arise
in reaction to binding price floors
change in supply
in the six months following Katrina, production of oil in the gulf of mexico declined by 25 percent
Price of a substitute rises. The equilibrium price of LCD TVs will
increase and the equilibrium quantity will increase
The price of fries decreases due to a potato surplus. This will
increase demand for McDonald's Big Mac hamburgers
INCREASE in the demand coupled with a decrease in supply may
increase, decrease or not change the equilibrium qty
As the price of a good rises producer surplus
increases
as the price of a good falls consumer surplus
increases
As the price of goods rises, producer surplus _________, and as the price of a good falls, producer surplus _________.
increases; decreases
teachers often wish that students come to class prepares having read the upcoming material, a teacher could design the grading system to motivate students to come to class prepares by ____ the grade weight assigned to being prepared
increasing
PPF bowed outward indicates
increasing Opportunity Cost as more and more of one good is produced
A PPF with a bowed outward shape indicates___
increasing opportunity costs as more and more of one good is produced
Improvements in the health of the average American caused the U.S. production possiblities fronteir to shift out primarily by
increasing the country's effective workforce
Economics is best defined as the study of how a. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants b. to make money c. the government should deal with unemployment and inflation d. to eliminate the problem of scarce resources e. to run a business
individuals decide to use scarce resources in an attempt to satisfy their unlimited wants
Suppose your friend tells you that he recently purchased a particular product for $1,000 but he considers the product to be "priceless." Assume your friend was not exaggerating, and really considers the product "priceless." His consumer surplus for this product would be
infinite because your friend's willingness to pay is infinite
An extrernality
interferes with the economic efficiency of market equilibrium, refers to a benefit or cost of an economic activity that affects someone who is not directly associated with it, may require government intervention
Golf course developers who buy the land around the golf course they build are attempting to:
internalize external benefits.
Life expectancy in the US declined b/t 1916 and 1918. This decline likely caused the US PPF to shift _____ because it signified a resource base made smaller by a less effective ______.
inward; workforce
Economic efficiency
is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum
The data on the realtionship between health care spending per person and income per person shows that health care
is a normal good
If a positive externality results from the consumption of higher education, then the marginal benefit stu-dents receive from education:
is less than the marginal social benefit.
Whether carried out by an individual or a country, production beyond the production possibilities frontier
is not physical possible
Production beyond the Production Possibilities Frontier
is not physically possible
The Patient Protection and Affordable Care Act (ACA)
is recently enacted legislation that significantly reorganizes the US health care system
Adverse selection
is the situation in which on party to a transaction takes advantage of knowing more than the other party to the transaction
one effect of tariffs and quotas
is to cost jobs outside the industries immediately affected
Economic information a. is usually scarce and costly to acquire b. is usually available free to any decision maker c. is usually not required for rational decision making d. must be complete before any decision is made e. is usually useful only to governments
is usually scarce and costly to acquire
The difference in the change of supply and the change of qty supplied is that the latter is
it is displayed graphically as a movement along a supply curve while the former is shown as a shift in the supply curve
using the same amount of resources suppose that nicaragua can produce twice as much wheat as columbia. nevertheless columbia could still have the comparative advantage in producing wheat if
it is even less efficient than nicaragua in the production of goods other than wheat
12. How is the tax burden shared between buyer and seller?
it is split between buyers and sellers
Should govt officials set regualtions to try and provide dependable incomes to every business in america
it is very difficult to conceive any scenario in which an effort would produce an economic efficiency.
why is the demand curve referred to as a marginal benefit curve?
it shows the willingness of consumer to purchase a product at different prices
why is the demand curve referred to as a marginal benefit curve
it shows the willingness of consumers to product at different prices
Why is the demand curve referred to as a marginal benefit curve?
it shows the willingness of consumers to purchase a product at diff prices
why is the demand curve referred to as the marginal benefit curve?
it shows the willingness of consumers to purchase a product at different prices
why is the supply curve referred to as a marginal cost curve
it shows the willingness of firms to supply a product a different prices
Why is the supply curve reffered to as the marginal cost curve?
it shows the willingness of firms to supply a product at diff prices
Why is the supply curve referred to as a marginal cost curve
it shows the willingness of firms to supply a product at different prices
As the price of the good increases the qty supplied will be
larger
Ceteris Paribus
latin for ALL ELSE EQUAL
In order to be binding a price ceiling must
lie below the free market equilibrium price
c
long run economies of scale exist when the long-run average cost curve a. rises b. remains constant c. falls d. does not exist
which of the following areas of economics studies issues such as whether government intervention capable of reducing the severity of recessions
macroeconomics
the level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. this is a ______ issue. however, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individuals firms dace, which is ______ issue.
macroeconomics microeconomics
The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called
macroeconomics.
economic reasoning
making decisions on the basis of costs and benefits
A production possibilities frontier can shift inward if there is a. an increase in the unemployment rate b. mandatory retirement at age 55 c. an improvement in technology d. a larger work force e. a larger capital stock
mandatory retirement at age 55
Capital
manufactured goods that are used to produce other goods and services
optimal decision
marginal benefit equals marginal cost
optimal decision occurs when
marginal benefit equals marginal cost
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
Economic surplus is maximized when
marginal benefit of consumption is equal to marginal costs of production.
The demand by all the consumers of a given good or service is the _____ for the good or service.
market demand
The sum of the individual demands of all consumers in the market is called a. individual demand b. market demand c. inferior good d. market supply e. quantity demanded
market demand
Would you expect new and better machinery to be adopted more rapidly in a *market economy or a *centrally planned economy?
market economy
Economic efficiency declines if price falls below the ______ _______.
market equilibrium
What is the result of negative and positive externalities?
market failure
government failure is...
market failure due to government intervention rather than externalities
MARKET EQUILIBRIUM
market outcome where qty demanded equals qty supply
efficiency means that goods are distributed in a way that __________, while equity means that goods are distributed in a way that ______.
maximized benefits to society is fair
Efficiency means goods are distributed in a way that ...
maximizes benefits to society.
A price ceiling is legally determined _______ price that sellers may charge. A price floor is legally determined ______ price that seller may receive.
maximum; minimum
Describe excludability.
means that anyone who does not pay for a good cannot consume it
What is the meaning of an elasticity coefficient? For example if the price elasticity of supply is 4. What does this number mean?
measures its responsiveness (elasticity) of the quantity supplied of a good or service to its change in price
How to calculate income elasticity of demand?
measures the rate of response of quantity demanded due to a change in consumers income. % change in QD/%change in income
the effect of higher cigarette taxes on the quantity of cigarettes sold. This is a _____ issue.
microeconomic
which of the following areas of economics studies issues such as ways to reduce teenage smoking?
microeconomics
The supply curve shows the
minimum price suppliers must receive in order to produce another unit of the good
Glut means
more is available than consumers wish to purchase
Change in quantity demand
movement along the demand curve due to a change in price
Change in quantity supplied
movement along the supply curve as a result of a change in price
decrease in the price of a prduct would cause
movement down on the demand line .
In order to be binding a price floor
must lie above the free market equilibrium price.
the incentive for employees to improve or maintain their health once they have obtain health insurance maybe _____ impacted
negatively
Consumer and producer surplus measure the ________ benefit rather than the _______ benefit.
net; total
% change
new-old/old x 100
does it matter whether buyers or sellers are legally responsible for paying a tax
no the market price to consumers and net proceeds to sells are the same independent of who pays the tax
"posner's argument is that the with e-books the demand will increase because they are cheaper" do you agree with points statement?
no, the accurate phrasing would be that " a reduced price drives up the number demanded"
do the people who are legally required to pay tax always bear the burden of the tax
no. whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government
what type of economic analyzed is concerned with the way things ought to be?
normative analysis
which of the following statements about normative analysis is correct?
normative analysis is concerned with what ought to be
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a......
normative statement. The statement is concerned with what should be.
we do not see complete specialization in the real world because
not all goods are traded internationally, production of most goods involve increasing opportunity costs, and tastes for products differ
Productive efficiency
occurs when a good or service is produced at the lowest cost possible
Describe rivalry.
occurs when consumption of one unit of a good precludes its consumption by someone else
Asymmetric information
occurs when one party to an economic transaction has less info than the other party
Allocative efficiency
occurs when production is in accordance with consumer preferences
Consumer surplus differs from the total benefit consumers receive from purchasing products because it measures
only the net benefit to consumers from participating in the market, the total benefit of participation less the amount paid to acquire the products.
producer surplus differs from the total benefit producers receive from producing products because it measures
only the net benefit to producers from participating in the market the total revenue received from consumers less the cost incurred to produce the product
An externality occurs when:
people other than those making the demand and supply decisions share the benefits or the costs of an activity.
Examples of activities that generate externalities in the market for health care
people receiving vaccinations, individuals engaging in injurious or reckless lifestyle choices
Suppose the US gov't encouraged new med school grads to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100000. These doctors would be exemplifying the economic idea that
people respond to economic incentives
defining characteristic of a perfectly elastic supply curve and its elasticity coefficient
perfectly horizontal; change in price will have an infinite effect on change in quantity
8. What is the defining characteristic of a perfectly inelastic demand or supply curve and what is the elasticity coefficient?
perfectly inelastic demand curve is perfectly vertical; change in price has no effect on quantity demanded
corporations and universities are willing to pay employees to take care of themselves because a healthier workforce....
performs more efficiently, thereby improving overall productivity in the workplace, translate to lower costs, in part by reducing illness-related absenteeism and premature retirement
If an increase in income causes a decrease in the demand of popcorn
popcorn is INferior good.
which of the following statements about positive analysis is correct?
postive analysis is concerned with what is
Why do some consumers tend to favor price controls while others tend to oppose them?
price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage
not a result of government price controls
price controls benefit poor customers but harm producers and wealthy customers
Do producers tend to favor price ceilings or floors? Why?
price floors bc when binding, price floors increase price above the equilibrium and may increase producer surplus.
Do producers tend to favor price floors or price ceilings? Why? Producers favor
price floors because, when binding, price floors increase price above the equilibrium and increase producer surplus.
Do producers tend to favor price ceilings or price floors
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus
Consumer surplus will equal the total benefit consumers receive consuming a product in the special case when
price is zero
One would speak of a change in the qty of a good supplied rather than a change in supply if
price of a good changes
normative analysis
price of coffee at Starbucks is too high
A market demand curve reflects the
private benefits of consuming a product.
If positive externalities are present in the production of a good, then society will:
produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.
difference between a change in supply and a change in the quantity supplied is that the latter
produced by a change in the products own price while the former is caused by a variety of variables other than the products price
A group of farmers in southwestern Pennsylvania selling locally raised natural beef would be identified as a a. not-for-profit organization b. S corporation c. producer cooperative d. sole proprietorship e. cottage industry
producer cooperative
Do producers tend to favor price floors or price ceilings? Why?
producers favor price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
not a consequence of minimum wage laws
producers have an incentive to offer workers non-wage benefits such as healthcare and convenient working hours rather than a higher wage
The two basic markets in the simple circular flow model are the a. product and resource market b. export and product market c. export and import market d. household market and the business market e. business market and the government market
product and resource market
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of production--labor, capital, natural resources and entrepreneurial ability
The basic reason that supply curves slope upward is that a. demand curves slope downward b. production is characterized by increasing costs c. profits decline as product prices rise d. greater output can only result from improved technology e. price and quantity supplied are inversely related
production is characterized by increasing costs
Point INSIDE the PPF line are inefficient bc
production there is not using all available resources.
when does productive efficiency occur?
productive efficiency occurs when a good or service is produced at the lowest possible cost
mature markets
products have reached mainstream customers and annual industry revenue growth slows
Productive efficiency
promoted by market economies where goods or services are produced at the lowest possible cost
Allocative efficiency
promoted by market economies where the production is consistent with consumer preference: the marginal benefit of production is equal to its marginal cost -every good or service is produced up to the point where marginal benefit is equal to marginal cost - when production is in accordance with consumer preferences
A tax equal to the external cost on firms that emit pollutants would:
provide firms with the incentive to decrease the level of activity creating the pollution.
Which of the following will most likely generate positive externalities?
public education
Which of the following may involve external benefits?
public education.
Market equilibrium
putting demand and supply together, a situation in which quantity demanded equals quantity supplied
q1 q2 greater than.. not be...
q3 q2 greater than .. be
If for a product qty supplied exceeds qty demanded the market price will fall until
qty demanded +qty supplied. The market price will +the equilibrium price.
Surplus is a situation where
qty supplied exceeds qty demanded, market price is above the equilibrium, firms have unsold goods piling up. Consumers compete and bid price upward
Decreases in price affect the
quantity demanded
shortage
quantity demanded is greater than quantity supplied
surplus
quantity supplied is greater than quantity demanded
Suppose the equilibrium price of a gallon of milk is $4. If the gov't imposes a price floor of $5 per gallon of milk, the
quantity supplied of milk exceeds the quantity demanded
Moral hazard
refers to actions people take after they have entered into a transaction that make the other party transaction worse off
A good economic theory
relies on simplifying assumptions in order to explain economic behavior and predicts well
Two words missing from the tenant and landlord story
rent control
In centrally planned economies..
resources are allocated by the government. They make the decisions Examples: Communist Countries - China, Russia, N. Korea, Cuba
The law of increasing opportunity costs applies when
resources are not equally adaptive among potential productive uses
Principal-agent problem
results from agents pursuing their own interests rather than the interests of the principals who hired them
slope of a line
rise over run
Firms are likely to produce more of a good or service if the price
rises and less of a good or service if the price falls
positive analysis
rising paper prices will increase textbook prices
Technological change
same inputs and getting more outputs
Each firm in an industry will NOT always supply the
same qty at each price
Entrepreneurs operate businesses that produce goods and
services
The cost of raw materials will cause the supply curve to
shift
Change in supply
shift of supply curve due to a change other than price
Change in demand
shift of the demand curve due to a change other than price
increase in population would cause the demand line to
shift right.
To protect the cod fishery off the northeast coast of the US may limit the amount of fish that each boat can catch in the fishery. The result of this public policy is to:
shift the supply curve to the left
The circular flow diagram illistrates
shows how households and firms are linked through product and factor markets
a production possibilities frontier
shows the maximum attainable combinations of two goods that may be produced with a available resources
production possibilities frontier
shows the maximum attainable combinations of two goods that may be produced with available resources
A production possibilities frontier
shows the maximum attainable combinations of two goods that may be produced with available resources.
A production possibilities frontier:
shows the maximum attainable combinations of two goods that may be produced with available resources.
The supply curve for watches
shows the relationship between the price of watches & QTY of watches supplied.
An economic model a. omits critical elements b. must be presented in mathematical terms c. simplifies reality in order to focus on its essential elements d. can never be proven wrong if its assumptions are realistic e. produces poor predictions if it includes an unrealistic assumption
simplifies reality in order to focus on its essential elements
What is market failure?
situations where the market fails to produce the efficient level of output
Costs that accrue to the total population are called ____ costs. Costs incurred by the producer or con-sumer who makes the decision are called ____ costs.
social; private
Not a result of imposing a rent ceiling
some consumer surplus is converted to producer surplus
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
When the government imposes price floors or price ceilings
some people win, some people lose, there is a loss of economic efficiency
when the government imposes price floors or price ceilings
some people win, some people lose, there is a loss of economic efficiency
Economic variables
something measurable that can have different values, such as the incomes of doctors
Surplus
something that remains above what is used or needed
how can a country gain from specialization and trade
specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services
If a store supplies the same amount of product one year as it did the last only to raise the price of the product this year the
store has experienced a decrease in supple
distinction between substitutes and complement
substitute goods are used for the same purposes while complementary goods are used together
An increase in the price of inputs would shift
supply line left
INcrase of the num of firms in the market would shift
supply line right
The PPF will shift OUTWARD if
technology advances occur or resources' are used to produce capital goods
Adam Smith believed that people's pursuit of their own self-interests a. tended to promote the general welfare b. required the government's "invisible hand" to keep the economy running smoothly c. might cause aggregate demand to be greater than aggregate supply d. would increase the wealth of a nation, which was the quantity of gold and silver it owned e. would decrease the wealth of a nation, which was its ability to produce goods and services
tended to promote the general welfare
Economic data is used to..
test models
economists use date to...
test models
according to economists, an efficient tax is one
that imposes a small excess burden relative to the tax revenue it raises
Points ON the PPF line would be EFFICIENT bc
that is where MAX output is produced with available resources.
A change in the following variables will change the market demand for a product except.
the $ of a product>
economic surplus is maximized when...
the MB of consumption is = to the MC of production
Economic growth
the ability of the economy to increase the production of goods and services
What is comparative advantage
the ability to produce a good or service at a lower opportunity cost than other producers
Comparative advantage
the ability to produce a good or service at a lower opportunity cost than other producers.
What is absolute advantage
the ability to produce more of a good or service than competitors using the same amount of resources
Absolute advantage
the ability to produce more of a good or service than competitors using the same amount of resources.
Human capital
the accumulated training and skills that workers possess.
Tax incidence indicates
the actual division of the burden of a tax
tax incidence
the actual division of the burden of tax
Tax incidence indicates
the actual division of the burden of the tax
Tax incidence is
the actual divison of the burden of tax b/t buyers and sellers in a market
Tax incidence indicates
the actually division of the burden of tax
marginal benefit
the additional benefit from consuming one more unit
Marginal Benefit is
the additional benefit from consuming one more unit.
Marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
Marginal cost is
the additional cost of producing one more unit
marginal cost
the additional cost of producing one more unit
Marginal Cost is
the additional cost of producing one more unit.
Marginal cost
the additional cost to a firm of producing one more unit of a good or service
consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Quantity demand
the amount of a good or service that a consumer is willing and able to purchase at a given price
Quantity supplied
the amount of a good or service that a firm is willing and able to supply at a given price
the total amount of producer surplus in a market is made up of
the area above the market supply curve and below the market price
What is a private benefit?
the benefit received by the consumer of a good or service
private benefit
the benefit received by the consumer of a good or service
marginal opportunity cost
the benefits and opportunity costs associated with one additional unit of the good
Calculate the price elasticity of demand and the price elasticity of supply using the midpoint formula.
the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices
Substitution effect
the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes ex: if coke were to go down in price more people will buy coke
Income effect
the change in the quantity demanded of a good that results from the effect of a change in the goods price on consumers purchasing power ex: if coke is cheaper, buyers will save money they now have greater purchasing power because they now can purchase more goods overall
Demographics
the characteristics of a population with respect to age, race, and gender
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources.
private cost
the cost borne by the producer of a good or service
to achieve efficiency? a pigovian tax must be equal to
the cost of the externality
You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision, if you are rational? a. the total cost of the magazines compared to the total satisfaction you would receive b. the total amount of satisfaction you would get from the magazines c. the enjoyment you would get from the third magazine d. the cost of the third magazine, including the time it takes to read it e. the cost of the third magazine compared to the additional enjoyment you would get from it
the cost of the third magazine compared to the additional enjoyment you would get from it
What are transaction costs?
the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods and services
Market demand
the demand by all the consumers of a given good or service
Invention
the development of a new good or a new process for making a good
Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
consumer surplus
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
consumer surplus
the difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays on a graph it is the area under the demand curve to price indicated
consumer surplus
the difference between the highest price a consumer is willing to pay for a good or service and the price they actually pay
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives
producer surplus
the difference between the lowest price a firm would be willing to accept and the price it actually receives
producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives
Producer Surplus
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
producer surplus
the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives
producer surplus
the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives. on a graph it is the area that is above the supply curve up to the price indicated.
The PPF model assumes what
the economy produces only two products
Equity
the fair distribution of economic benefits
Equity is..
the fair distribution of economic benefits
normative analysis
the federal gov should spend more on AIDS research
Describe the command and control approach.
the government sets specific quantitative limits
The law of demand hypothesizes that, other things being equal,
the higher the price the lower the quantity demanded
opportunity cost
the highest value alternative that must be give up to engage in an activity
Opportunity cost
the highest valued alternative that must be given up to engage in a activity
Opportunity cost is
the highest valued alternative that must be given up to engage in activity
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
which of the following statements about the idea that people are rational are correct?
the idea assumes that consumers and firms use all the available information as they act to achieve their goal
While specialization and trades facilitate the attainment of higher living standards
the immediate or proximate motive is most likely jobs
_____ is used to describe how changes in the price affect a consumers purchasing power and ______ is used to describe how a chance in price affects the quantity demanded of a good by making it more or less expensive then substituted goods
the income effect the substitution effect
The circular flow of income illustrates
the interaction of households and firms through the factors and goods markets
A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." This statement is false because
the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.
Consumers are willing to purchase a product up to the point where
the marginal benefit of consuming a product is equal to its price
consumers are willing to purchase a product up to the point where
the marginal benefit of consuming the product is equal to the marginal cost of consuming it
Economic surplus is maximized when ___
the marginal benefit of consumption is equal to the marginal costs of production
economic surplus is maximized
the marginal benefit of consumption is equal to the marginal costs of production
economists believe that an activity should be continued up to the point where
the marginal benefits from the activity is equal to the marginal cost
A positive consumption externality causes
the marginal social benefit to exceed the marginal private cost of the last unit produced by the private market.
If there are important spillover benefits from consumption of a good,
the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production.
Willingness to pay measures
the maximum price that a buyer is willing to pay for a good.
marginal cost is
the minimum price a producer is willing to accept for its product
Assume that the hourly price for the services of tarot card readers has risen and sales of those services have fallen. One can conclude that
the number of tarot card readers has decreased
Who is harmed when individual nations move from autarky to free trade
the owners of the firms who went out of business
What is the formula for price elasticity of demand?
the percentage change in quantity demanded divided by the percentage change in price
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives
An increase in input prices caused a decrease in the supply of baseballs. As a result_______
the price of baseballs increased and the quantity demanded decreased
The demand for a given commodity will remain the same with a change in
the price of the commodity
One would speak of a change in quantity of a good supplied, rather than a change in supply, if
the price of the good changes.
if a negative externality in production is present in a market then...
the private cost of production will be different than the social cost of production.
suppose cig generate a negative externality in consumption. if so, then
the private market equilibrium results in a quantity that is greater than the efficient quantity
The law of demand is the assertion that
the quantity demanded is inversly related to its price
law of demand is the assertion
the quantity demanded of a product is inversely related to its price
If the price of gasoline (a normal good) decreases, other things constant, a. the demand for gasoline increases b. the demand for gasoline decreases c. the quantity demanded of gasoline increases d. the quantity demanded of gasoline decreases e. neither the demand for gasoline nor the quantity demanded of gasoline changes because everything is assumed constant along a demand curve
the quantity demanded of gasoline increases
If, in a competitive market, marginal benefit is less than marginal cost,
the quantity sold is greater than the equilibrium quantity.
If, in a competitive market, marginal benefit is greater than marginal cost
the quantity sold is less than the equilibrium quantity.
Deadweight loss is
the reduction in economic surplus resulting form a market not being competitive equilibrium.
Deadweight loss
the reduction in economic surplus resulting from a market not being in competitive equalibrium
deadweight loss
the reduction in economic surplus resulting from a market not being in competitive equilibrium
"suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease" What is the opportunity cost of spending more money to find a cure for heart disease?
the reduction in funding for research to cure other diseases
Private Property rights are
the rights individuals and firms have to the exclusive use of tangible, physical and intellectual property.
What are property rights?
the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it.
11. What is the meaning of the term "tax incidence"?
the sharing of the burden of tax
diseconomies of scale
the situation in which a firms long run average cost rise as the firm increases input
human capital
the skill knowledge and expertise workers acquire through experience education and training
Positive analysis
the study of "what is?" What economists generally perform
Normative analysis
the study of "what ought to be?"
Economics
the study of the choices people make to attain their goals, given their scarce resources
IN increase in the price of a product will decrease in the qty demanded bc of income and substitution effects,
the subs effect is the decrease in the qty demanded bc the product is more expensive relative to other goods and the income effect is the decrease of the qty demanded owing to the decline in consumers purchasing power
increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects
the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers purchasing power
a change in supply
the success of apples ipod leads more firms to being producing digital music players
What is a "social cost" of production?
the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product
Economic surplus
the sum of consumer surplus and producer surplus
Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which
the sum of consumer surplus and producer surplus is at a maximum
Economic surplus is
the sum of consumer surplus and producer surplus.
If in the market for peaches, the supply curve has shifted to the left,
the supply of peaches has decreased.
The most important determinant for elasticity of supply is
the time period firms have to adjust to the new price
social benefit
the total benefit from consuming a good or service including both the private benefit and any external benefit
What is a social benefit?
the total benefit from consuming a good, including both the private benefit and any external benefit
Consumer surplus differs from the total benefit consumers receive from purchasing products because it measures ____
the total benefit of participation less then the amount paid to acquire the products and only the net benefit to consumers from participating in the market
What is a social cost?
the total cost of production, including both the private cost and any external cost
social cost
the total cost of producing a good including both the private cost and any external cost
Producer surplus differs from the total benefit producers receive from producing products bc it measures.
the total revenue recieved from consumers less the cost incurred to produce the products, only the net benefit to producers from participating in the market.
Scarcity
the unlimited wants exceeds limited resources
The opportunity cost of an activity is a. zero if you choose the activity voluntarily b. the amount of money spent on the activity c. the value of the best alternative not chosen d. the sum of benefits from all of the sacrificed alternatives e. the difference between the benefits and the costs of that activity
the value of the best alternative not chosen
what is the difference between the voting paradox and the arrow impossibility theorem?
the voting paradox refers to majority voting, while the arrow impossibility theorem refers to all systems of voting
a market system prevents people from getting as many goods and services as they want due to
their income
If a demand curve shifts tot he right
then demand has increased.
The presence of negative externalities leads to a misallocation of societal resources because:
there are some costs associated with production that the producer fails to take into consideration.
According to the law of demand,
there is an inverse relationship between price and quantity demanded.
if marginal cost is greater than marginal benefit
there will be deadweight loss
Comparisons of helath care outcomes across countries often concentrate on measures such as life expectancy and infant mortality since
they are among the easiest outcomes to measure because a specfic event (death) has occured
How should policy makers determine the amount of money that should be allocated for research to curing heart disease?
they should base their decision on whether the last dollar devoted to research on heart disease results in MORE benefit than the last dollar devoted to research on curing other diseases.
Economist assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goal
economist assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goal
Economist assume that people are rational in the sense that..
they use all available information as they take actions intended to achieve their goals
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
economists assume that people are rational in the sense that...
they use all the available information as they take action intended to achieve their goals
INcreased production leads to a lower price, which in turn increases demand
this refers to an increase to qty demanded
With respect to consumption countries can
through TRADE, can consume beyond their PPF
Which of the following is most likely to be a normal good? a. trips to the laundromat b. macaroni-and-cheese dinners c. tickets to major league baseball games d. bus rides e. used paperback books
tickets to major league baseball games
Economists use models
to answer questions and analyze issues
Independent courts are necessary for a well functioning economy
to make their decisions; based on the law, free of intimidation, free of political influence or other parts of the government.
change in quantity supplied
to take advantage of high prices for snow shovels during a very snowy winter, Alexander, decides to increase output
Economic data is used
to test models.
Assume that production of a good generates external benefits for others. The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.
too high; too low
when there is a positive externality in producing a good or service...
too little of the good or service will be produced at market equilibrium
Consider two goods-one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce:
too little of the good that generates external benefits relative to the social optimum, and too much of the good that generates external costs.
Assume that production of a good imposes external costs on others. The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.
too low; too high
when there is a negative externality in producing a good or service....
too much of the good or service will be produced at market equilibrium
perfectly inelastic demand in relation to tax burden
total burden of tax for buyer
perfectly inelastic supply in relation to tax burden
total burden of tax for producer
what happens when a government imposes a tax?
total surplus decreases
spending more time commuting in exchange for a lower monthly rent refers to a(n)
trade-off
Voluntary exchange
transactions that make both the buyer and seller better off
Market
type of economy: a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade (consumers and producers working together without knowing)
Mixed economies
type of economy: have features of both market and centrally planned economies, most economic decisions result from the interactions of buyers and sellers, but government plays a significant role in the allocation of resources
If a good that features a positive externality is produced in an unregulated free market, the good will be:
under-produced and under-valued.
If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.
understates; decrease
If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.
understates; increase
you shouldn't necessarily do what you are better than anyone else at doing
unless your activity in that activity is greater than the advantages you possess in other activities
scarcity
unlimited wants exceed the limited resources available
Economics assumes people and firms:
use all available information to achieve their goals, respond to incentives, and make decisions by comparing marginal benefits with marginal costs.
Economics assumes that people and firms..
use all avilable information, respond to incentives, and make decisions by comparing marginal benefits with marginal costs
How else can you calculate the price elasticity of demand?
using the initial values for price and quantity
scarcity
we have limited resources and unlimited wants
over the years the economic incentive for foots operate private practices as opposed to becoming salaried hospital employees have
weakened to the extent that a majority of the doctors now work for hospitals
the three economic questions that every society must answer are...
what goods will be produced how will they be produced who will receive the goods
The three economic questions that society must answer are..
what goods will be produced, how will the goods be produced, and who will recieve the goods
normative analysis
what ought to be
6. When does a deadweight loss arise?
when a tax is imposed in the market/when the market is not at equilibrium
interior good
when income increases the demand for the good decrease
distinction between a normal and an inferior good
when income increases, demand for a normal good increases while demand for an inferior good falls
deadweight loss
when the government gets involved, and dictates prices, reduction in economic surplus resulting from a market not being in competitive equilibrium
the private cost of producing a good will differ from social cost....
when there is an externality such as acid rain generated by production of electricity
when will the private benefit from consuming a good differ from the social benefit?
when there is an externality such as fewer disease generated by consumption of vaccine
Scarcity def.
when wants exceed the limited resources available
economic efficiency 2
where consumers surplus and producer surplus are maximized
The concept of scarcity in economics usually refers to a condition
where peoples wants can never be satisfied by the available resources
Shortage is a situation
where qty demanded exceeds qty supplied, some consumers are unable to purchase at current price, the market price is below the equilibrium.
Perfectly inelastic demand means that consumers
will buy a certain quantity, regardless of the price
if a seller charges a buyer the exact price the buyer is willing to pay, then the buyer
will buy the good and receive no consumer surplus from that unit of the good
Is it possible for a country to have a comparative advantage in producing a good without having also having an absolute advantage? A country without an Absolute advantage in producing a good...
will have a COMPARATIVE advantage IF it has a lower opportunity cost at producing that good.
A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good
We can show economic Inefficiency
with points INSIDE the PPF
We can show economic efficiency
with points ON the PPF
we can show economic inefficiency
with points inside the production possibilities frontier
we can show economic efficiency
with points on the production possibilities frontier
We can show economic efficiency:
with points on the production possibilities frontier.
The slope of a horizontal line is a. infinitely large b. zero c. positive d. negative e. infinitely small
zero
Jeff decides that he would pay as much as $3000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?
-$2300
To develop a model that will answer economic questions, economists typically? A-first start with any complex model and then revise as necessary to make the model as simple as possible. B-. first make a testable hypothesis, then formulate assumptions, test the assumptions, and finally revise the model if necessary. C-. first make simplifying assumptions, then formulate a hypothesis, test the hypothesis, and finally revise the model if necessary
-. first make simplifying assumptions, then formulate a hypothesis, test the hypothesis, and finally revise the model if necessary
If a 10% increase in income leads to a 5% decrease in the demand for a good, the income elasticity of demand equals _______ and the good is ______ good
-1/2; an inferior
4.determinants of the price elasticity of demand.
-A good with more close substitutes will likely have a higher elasticity -the higher % of consumer income the higher the elasticity -higher necessity = lower price EoD
Results of imposing a rent ceiling
-A reduction in the quantity supplied of apartments -the marginal benefit of the last apartment rented is greater than the marginal cost of supplying it
The 1990 Clean Air Act is administered by the
-Environmental Protection Agency
The association formed to lower trade barriers and encourage trade between Canada, the United States and Mexico is known as:
-NAFTA
Which one of the following will not help to reduce the problem that exists when social costs exceed social benefits?
-Subsidize Polluters;
The lack of private ownership of certain resources like public lands or water can contribute to overuse. This is known as:
-The Tragedy of the Commons
The substitution effect is the change in the quantity demanded of a good that results from __________, holding constant the effect of the price change on consumer purchasing power.
-a change in price making the good more or less expensive relative to other goods
The World Trade Organization (WTO) determines that dumping has occurred if:
-a product is exported for a lower price than it sells for in a home market
For the Coase Theorem to hold what must be true?
-all parties to an agreement must have full info about the costs and benefits of the externality.
What gives people an economic incentive to actively assist in repopulating an endangered species?
-allowing people to own the endangered species and to charge the public to view them in nature displays, safaris,and other natural venues.
Water shortages caused by droughts can be most efficiently lessened by
-allowing price to equate the quantity demanded of water with the quantity supplied of water.
What is consumer surplus area on the graph?
-area above price and under demand
determinants of the price elasticity of supply
-availability of materials -excess capita -close substitutes
For markets to generate the greatest benefit and function in the most efficient manner they must:
-be perfectly competitive
When the United States engages in international trade with China,
-both China and the United States reap economic benefits.
Social benefit is the total benefit from the consumption of a good or service that includes
-both private and external benefits
One idea often floated in the United States as a legislative response to global climate change is __________.
-cap and trade
The global trend towards large multinational firms is partially driven by __________.
-comparative advantage
Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage.
-comparative; comparative
In what ways is the market for health care in the United States similar to the markets for other goods and services?
-consumers of health care make the decisions about how much they wish to consume -health care sellers are primarily private firms
Which of the following is not an externality? conducting medical research producing a college education producing honey with bees generating electricity consuming a coke
-consuming a coke is not an externality
Define Transaction Costs
-costs associated with engaging in a process to solve a particular pollution problem
Define Private Costs
-costs that are only borne by the individuals that incur those costs
A tax placed on kite buyers will shift
-demand downward, causing both equilibrium price and quantity to fall.
The demand curve for an inferior good is __________ sloping while the demand curve for a Giffen good is __________ sloping.
-downward; upward
What is the name given to the sale of a product for a price below its cost of production?
-dumping
Nations that use trade restrictions to pursue global environmental goals will:
-encounter resistance from WTO
The idea of a pollution tax is the internalize the externality, which happens when the tax:
-equals the external cost
Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 tax on the buyer of each car, we can assume that the
-equilibrium price of a car would decrease by less than $500.
A cheeseburger is
-excludable and rival.
When a private cost is different than the social cost there is an:
-external cost being borne by someone else
How do property rights affect externalities and market failure?
-externalities and market failure will result from the difficulty of enforcing property rights.
When a firm buys or builds facilities in a foreign country it is known as:
-foreign direct investment
The opponents of globalization contend that:
-globalization destroys cultures
Define Exports
-goods and services produced domestically but sold to other countries
In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally?
-grazing created a negative externality, resulting in the commons being overused.
A negative externality causes the social cost of production to be:
-greater than the private cost
If the Japanese steel industry subsidizes the steel that it sells to the United States, the
-harm done to U.S. steel producers is less than the benefit to U.S. consumers of steel.
Health care system descriptions: Canada Japan The UK The US
-has a single-payer health care system where the government provides national health insurance to all residents -has a system of universal helath insurance under which every resident is required to either enroll in a non- profit health insurance society or in a government health insurance program -the government owns most hospitals and employs most doctors, so the health care system if referred to as a socialized medicine -most people have private health insurance through employers, with the government also providing insurance to the poor, aged, and military veterans
Public theory suggests that one of the government's purposes is to
-help people make collective decisions
One reason pollution limits are difficult to implement is due to the
-high cost to monitor compliance
Inputs or outputs go to the _____ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.
-highest
What is the relationship between price elasticity of demand and total revenue?
-if the price EoD is elastic (<1), TR will decrease for a price increase and increase for a price decrease -if the price EoD is inelastic (>1), TR will increase for a price increase and decrease for a price decrease
The substitution effect for a normal good is __________ while the substitution effect for an inferior good is __________.
-inversely related to price; inversely related to price
The Tragedy of the Commons
-is eliminated when property rights are assigned to individuals.
The marginal cost of eliminating the first 20% of pollution is much __________ than the marginal cost of eliminating the last 20% of pollution.
-less expensive
If polluters are charged to pollute then:
-less pollution is a probable result
Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist?
-levy a tax that varies with the level of congestion
Rent controls
-make tenants less mobile
The optimal combination of pizza and coke is the one where the:
-marginal utility spent per dollar on pizza EQUALS the marginal utility spent per dollar on coke
How might transaction costs affect private solutions to externality problems?
-may make private solutions to reduce negative externalities no longer feasible.
The burden of a luxury tax falls
-more on the middle class than on the rich.
If an effective minimum wage is imposed..
-more workers will be unable to find jobs
Describe changes over time in the health of the average person in the United States
-mortality rates have decrease -obesity has increased -life expextancy at birth has increased -the likelihood of death in the first months of life has fallen
The income effect for a normal good is __________ while the income effect for an inferior good is __________.
-negative; positive
When no one owns a specific resource there is
-no incentive to consider negative externalities that impact that resource
Define rival private goods
-one persons enjoyment takes away from anothers enjoyment
In considering consumers' attitudes towards fairness, which of the following have economists found to be true?
-people attempt to treat others fairly, even if that makes them worse off financially
Which of the following groups of people are opposed to the World Trade Organization (WTO)?
-people who want to protect domestic firms
Black markets may arise if
-price ceilings exist. Price cielings keep price below equilibrium and create shortages.
Results of government price controls
-price controls decrease economic efficiency -a deadweight loss will occur -some people win and some people lose
Prolonged shortages arise if
-prices are not allowed to reach equilibrium
Define excludable private goods
-producers can exclude some buyers from enjoying the good
The lack of clearly assigned __________ contributes to __________ of common resources.
-property rights; overuse
Multinational corporations expanding into foreign markets often:
-provide thousands of jobs for foreign nationals
Goods that are nonexcludable and nonrival are
-public goods.
A numerical limit on the quantity of a good that can be imported is known as a(n):
-quota
Price performs what kind of function?
-rationing
Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:
-seeks to cap nationwide emissions and then distributes emission-allowance permits across firms
Prolonged agricultural surpluses can arise if governments
-set the price above equilibrium
Which of the following factors best explains why consumers might prefer to go to a restaurant that was identical to another in terms of décor, food choices and price but had more customers?
-some people receive utility from goods they believe are popular
Consequences of minimum wage laws
-some workers benefit when the minimum wage is increased -employers will be reluctant to offer low skill workers jobs with training -low skilled workers are hurt because it reduces the number of jobs providing low skilled workers with training
Price controls that put a price floor on goods and services create
-surpluses
Which of the following arguments is used to justify protectionism?
-tariffs and quotas protect infant industries
Define Tax Incidence
-the actual division of the burden of a tax between buyers and sellers in a market.
The budget line shows:
-the affordable combo of goods and services you can buy with your income
Explain the health of people in the US during the past 150 years
-the average person has become taller -infant mortality has decreased -life expextancy has more than doubled
What is an example of a transaction cost?
-the cost associated with monitoring an agreement to reduce a negative externality.
Which of the following is a drawback to the infant industry justification for protectionism?
-the industries under protection may never become efficient enough to compete with foreign firms
If increasing your consumption of pizza from 3 to 4 slices increases your utility, which of the following must be true?
-the marginal utility of the fourth slice of pizza must be positive
If a positive externality in comsumption is present in a market, then....?
-the private benefit from consumtopn will be different than the social benefit from consumption.
When network externalities are present, the usefulness of:
-the product increases as more consumers use it
Define External Economies
-the reduction of costs resulting from industry concentration in a given area
Which of the following is a source of comparative advantage?
-the relative abundance of capital and labor
What is true about shortages and scarcity?
-there is not shortage of most scarce goods.
Economists define economic efficiency in this way
-to help policymakers understand the negative consequences of price ceilings -to help policymakers understand the negative consequences of taxes -to illustrate the benefits of a competitive market equilibrium -to help policymakers understand the negative consequences of price floors
The total utility of consuming two slices of pizza is the:
-total satisfaction you get from consuming the two slices of pizza
The Coase theorem postulates that private solutions to the problem of negative externalities are possible if:
-transaction costs are low
If the income effect of a price change for an inferior good is larger than the substitution effect, the demand curve will be:
-upward sloping
An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is known as a(n):
-voluntary export restraint
What is Welfare?
-wealth, surplus
Define Price Control
-when the gov intervenes to make an equilibrium
Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because
-with shortages and waiting lists, they have no incentive to maintain and improve their property.
Equity means goods are distributed in a way that is...
...fair.
Economist assume that people are rational in the sense that:
...they use all available information as they take actions intended to achieve their goals.
perfectly competitive market is a market that meets the conditions
1 many buyers and sellers, 2 all firms selling identical products, 3 no barriers to new firms entering the market
Consumer and producer surplus measure the ___ benefit rather than the ___ benefit
1) net 2) total
Three fundamental questions
1. What goods and services will be produced? 2. How ill the goods and services be produced? 3. Who will receive the goods and services produced?
The 3 economic questions that every society must answer are:
1. What to produce 2. How we produce it 3. For whom to produce
Describe free riding?
1. benefiting from a good without paying for it 2. Because of free riders, public goods are usually supplied by government rather than private firms.
Describe positive externalities.
1. benefits received by individuals not directly involved in producing or consuming a good or service 2. causes the social benefit from consuming a good or service to exceed the private benefit 3. causes output to be less than the economically efficient amount
Describe Pigovian tax and subsidy.
1. cause consumers and firms to internalize the externalities associated with production and consumption 2. The tax or subsidy would be equal to the dollar amount of the externality
Describe negative externalities.
1. costs imposed on individuals not directly involved in producing or consuming a good or service 2.causes the social cost of production of a good or service to exceed the private cost borne by the producer 3. causes output to exceed the economically efficient amount
Describe the Coase Theorem.
1. if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities 2. services. Successful application of the Coase Theorem requires that the bargaining parties have full information regarding the costs and benefits associated with the externalities and are willing to accept a reasonable agreement
Economic ideas
1. people are rational 2. people respond to economic incentives 3. optimal decisions are made at the margin ("all or nothing")
A cafeteria is willing to produce 100 cups of coffee when the price is $1 and 150 cups when the price is $1.30. The price elasticity of supply of coffee is
1.53
if the absolute price elasticity of demand is 2.0, a 5% decrease in price will increase quantity demanded by
10%
Including the 1.25 per pack tax the ttl amount that cig buyers would pay per pack would be
4.50
Refer to Exhibit 1-13. The reason that Line (a) would shift to the position of Line (b) is a. a change in quantity b. a change in price c. a change in an assumption about the relationship between the two variables observed d. a change from a positive relation to a negative relation e. a change from a negative relation to a positive relation
< , , , , , , , , , ,, a change in an assumption about the relationship between the two variables observed
Exhibit 4-5 (Other side) depicts the milk market. The horizontal line, P, represents a price ceiling imposed by the government. Which of the following is true? a. In equilibrium, the quantity demanded is 800 gallons. b. At the ceiling price, there is a surplus. c. The quantity demanded at the price ceiling will equal the quantity supplied. d. The equilibrium price would be $1 per unit without the price ceiling. e. The quantity supplied at the price ceiling will equal the quantity sold.
< < < < < < < < < < < < < < < < The quantity supplied at the price ceiling will equal the quantity sold.
(GRaph on other side) In Exhibit 2-3, if resources are used fully and efficiently, then the economy can produce at point(s) a. f b. h,d,or e c. a,b,or c d. d or e e. g,h,or i
< < < < < < < < < < < < < < < < < < < < < < < < < < < < g,h,or i
(OTHERSIDE) In Exhibit 4-4, suppose a price floor is established at $20.00. What is the result? a. a shortage of 10 units b. a surplus of 10 units c. a shortage of 20 units d. a surplus of 20 units e. there is no change from the situation that exists at the equilibrium price
<<< <<<< <<<< <<<< <<<< <<<< <<<< <<<< <<<< <<<< < <<<< <<<< <<<< < <<<< <<<< <<<< < <<<< <<<< <<<< < <<<< <<<< <<<< < <<<< <<<< <<<< < <<<< <<<< <<<< < there is no change from the situation that exists at the equilibrium price
How to characterize the good (luxury, necessity or inferior) based on the income elasticity of demand coefficient?
>1 is a necessity <1 is a luxury negative income elasticity of demand = inferior good
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1% increase in in the price of the good causes quantity demanded to decrease by 3%
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1% increase in the price of a good causes quantity supplied to increase by 4%
a
A Lorenz curve shows a. the distribution of income. b. the distribution of prices. c. the distribution of taxes. d. none of the above.
- Price Ceiling -Price Floor
A _________ is a legally determined maximum that sellers may charged. A _________ is a legally determined minimum price that sellers may receive.
what is externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
A market in which buying and selling takes places at prices that violate government price regulations.
A black market is:
d
A cartel: a. is a group of firms formally agreeing to control the price and the output of a product b. has as its primary goal to reap monoply profits by replacing competition with coorperation c. is illegal in the united states, but not in other nations d. all of the above
d
A change in supply cannot be caused by a change in: a. resource prices b. technology c. prices of other goods d. the price of the good itself e. the number of suppliers
d
A change in which of the following factors would cause a movement along the labor supply curve rather than a shift of the curve? a. a change in demographics b. a change in alternatives available in other labor markets c. a change in population d. a change in the wage
An unexpected frost in the orange groves of California would cause
A decrease in the supply of orange juice, increasing the equilibrium price
b
A firm can produce 450 gallons of milk per day with 4 workers and 500 gallons per day with 5 workers. The marginal product of the fifth worker expressed in gallons per worker per day is: a. 35 b. 50 c. 70 d. 350
d
A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do? a. Shut down b. Increase output c. Stay at its current output d. decrease output e. decrease price
b
A firm's supply curve is the: a. entire marginal cost curve b. rising part of its marginal cost curve c. falling part of its marginal cost curve d. entire marginal revenue curve
Which of the following describes an external benefit resulting from an individual's purchase of a winter flu shot?
A flu shot reduces the likelihood that others will catch the flu from you.
D
A free market exists: A- when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed B- when the government places absolutely no restrictions on how a good or service can be produced or sold or on how a factor of production can be employed C- Only in fiction. There are no markets or economies which even come close to approaching the status of a free market D- when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed
How to characterize the good (substitute or complement) based on the cross price elasticity of demand coefficient?
A good is a complement if it has a negative cross price elasticity of demand. A good is a substitute if it has a positive cross price elasticity of demand
d
A kink in the demand curve facing an oligopolist is caused by: a. rapidly rising marginal revenues b. excessive advertising c. the belief that competitors will follow price increases but not match price decreases d. the tendency of competitors to follow price reductions but not price increases.
b
A kinked demand curve is perceived by the firm as being: a. more elastic to the right of the kink b. more inelastic to the right of the kink c. more inelastic to the left of the kink d. present when there is a monopoly e. bowed-in or bowed-out
d
A local cable company has its rates set at P = $15 by a regulatory commision. Its current output is 10,000 households and it costs are as follows: ATC = $17; AVC = $14; and MC = $15. Form this we can tell that this is: a. a fair price, and the firm earns a normal profit b. a fair price, and the firm earns an economic loss c. mrginal cost pricing, and the firm earns a normal profit d. Marginal cost pricing, and the firm earns an economic lostt e. the same price that an unregulated monopolist would charge
c
A market consequence of the establishment of a price floor program is that price will be: a. too low, and an excess supply will result b. too low, and a shortage will result c. too high, and an excess supply will result d. too high, and a shortage will result e. below the market equilibrium price
Competitive market equalibrium
A market equilibrium with many buyers and sellers
Economic efficiency
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
Price floor
A market price that cannot go lower
b
A market with one buyer of a factor of production is called a. monopoly. market with one buyer of a factor of production is called b. monopsony. c. oligopoly. d. none of the above.
cross price elasticity of demand formula
A measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
b
A monopoly sets a market price that is higher than the marginal cost of production. This fact implies that a monopoly's allocation of resources is: a. unfair b. inefficient c. discriminatory d. excessive
a
A normal good is a good for which demand increases as: a. the income of consumers increases b. its own price increases c. the price of close substitutes decreases d. the total number of consumers increases e. a reflection of changing consumer tastes.
c
A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. To maximize short-run profit, the firm should: a. increase output b. decrease output c. maintain its current output d. shut down
which term refers to a legally established minimum price that firms may change
A price floor
b
A price taker is a. A firm with a perfectly inelastic demand curve b. A firm that is unable to affect the market price c. A firm facing a downward sloping demand curve for its product d. A firm that has the ability to charge a price greater than marginal cost e. A firm that does not seek to maximize profits.
Price ceilings
A price that cannot be exceeded in a market
Define Productive Efficiency.
A situation in which a good or service is produced at the lowest possible cost.
Shortage
A situation in which the quantity demanded is greater than the quantity supplied
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants - one of the basic facts of life is that people must make choices as they try to attain their goals this unavoidable fact comes from a reality an economist calls ____
22. Which of the following statements is false? A) Social benefits are external benefits minus private benefits. B) Social costs are private costs and any external costs. C) Private benefits are received by the consumer of the good or service. D) Private costs are borne by the producer of the good or service.
A) Social benefits are external benefits minus private benefits.
50. How does the construction of a market demand curve for a private good differ from that for a public good? A) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price C) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up but the quantities demanded by each consumer at each price.
A) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which it subsequently destroys). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever." Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999. What would be the impact on the price of the emission allowances in the market? A) The price rises. B) The price falls but not to zero. C) The price remains unchanged because the allowances purchased by the environmental groups are destroyed. D) The price falls to zero.
A) The price rises.
20. Which of the following conditions holds in an economically efficient competitive market equilibrium? A) There are no positive and no negative external effects from consumption and production. B) The marginal benefit of the last unit produced and consumed is maximized. C) Producer and consumer surplus are exactly equal in size. D) The deadweight loss is positive but at a minimum.
A) There are no positive and no negative external effects from consumption and production.
31. Consider the following characteristics: a. low transaction costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights. Which of the above are assumptions behind the Coase Theorem? A) a and d B) a, b, and d C) a, c, and d D) a only
A) a and d
60. The basic cause of deadweight losses from the existence of common resources and externalities is A) a lack of clearly defined and enforceable property rights. B) the absence of government intervention. C) the use of a market system to deal with scarcity. D) the self interested rationality of human beings.
A) a lack of clearly defined and enforceable property rights.
52. For-profit producers will produce only private goods because A) buyers will be willing to pay for the goods since the benefits are excludable. B) the cost of production can be easily determined easily found. C) markets exist for private goods but not for public goods. D) all external benefits can be internalized using market prices.
A) buyers will be willing to pay for the goods since the benefits are excludable.
34. What does the phrase "internalizing an external cost" mean? A) forcing producers to factor into their production costs, the cost of the externalities created in the production of their output B) prohibiting economic activities that create externalities C) limiting the extent to which domestic firms can outsource production D) finding a way to address cross-border pollution
A) forcing producers to factor into their production costs, the cost of the externalities created in the production of their output
7. Which of the following is an example of a product that is nonexcludable and rivalrous? A) free concert (with limited seating) in a park B) flu vaccinations C) automobiles D) national defense
A) free concert (with limited seating) in a park
Issuing marketable emission allowance permits to polluting firms A) gives the industry the right to a specific level of pollution. B) generates income for the government. C) has the same impact as a subsidy on production. D) encourages more pollution.
A) gives the industry the right to a specific level of pollution
62. Private producers have no incentive to provide public goods because A) once produced, it will not be possible to exclude to those who do not pay for the good B) they cannot avoid the tragedy of the commons. C) the government subsidy granted is usually insufficient to enable private producer to make a profit. D) production of huge quantities of public goods entails huge fixed costs.
A) once produced, it will not be possible to exclude to those who do not pay for the good
49. In economics, the term "free-rider" refers to A) one who waits for other s to produce a good and then enjoys its benefits without paying for it. B) a supervisor who delegates menial time-consuming activities to others C) a person who evades taxes. D) one who volunteers her services.
A) one who waits for other s to produce a good and then enjoys its benefits without paying for it
A product is considered to be nonexcludable if A) you cannot keep those who did not pay for the item from enjoying its benefits. B) your consumption of the product reduces the quantity available for others to consume. C) you can keep those who did not pay for the item from enjoying its benefits. D) it is jointly owned by all members of a community
A) you cannot keep those who did not pay for the item from enjoying its benefits.
In general, the term "ceteris paribus" means? A-all else equal. B- holding everything else variable. C unsettled mathematical paradigms.
A-all else equal.
There is a government budget surplus if A. T-Tr> G. B. G>Tr. C. Tr<T. D. G>T
A. T-Tr> G.
Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations? A. There are fewer government regulations in the United States regarding the way firms can hire and fire workers. B. European countries have more flexible policies regarding the number of hours employees are permitted to work. C. Job mobility in the United States is more restricted than it is in many foreign countries.
A. There are fewer government regulations in the United States regarding the way firms can hire and fire workers.
The shows the relationship between the price level and quantity of real GDP demanded. A. aggregate demand curve B. consumer price index C. 45-degree line
A. aggregate demand curve
An increase in the price level results in a(n) in the quantity of real GDP demanded because ----- A. decrease; a higher price level reduces consumption, investment, and net exports. B. increase; a higher price level reduces consumption, investment, and net exports. C. decrease; a higher price level increases consumption, investment, and net exports.
A. decrease; a higher price level reduces consumption, investment, and net exports.
When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing? A. diminishing returns. B. decreasing production. C. accelerating returns.
A. diminishing returns.
Creative destruction means that? A. firms develop new products that replace old products in the economy, thereby encouraging economic growth. B. knowledge capital can be created through a system of government subsidies for education and researchan-d development. C. research and development should only be financed if research and development is incremental (a result of making small changes to existing products).
A. firms develop new products that replace old products in the economy, thereby encouraging economic growth.
All of the following policies are ways for a country to promote long-run economic growth except A. imposing stricter regulations to limit foreign direct investment. B. increasing vaccinations against infectious diseases. C. undergoing political reform to decrease corruption.
A. imposing stricter regulations to limit foreign direct investment.
When the economy enters a recessionary phase of the business cycle, unemployment tends to A. increase. B. decrease. C. be unchanged. D. change in the same direction as the rate of inflation.
A. increase.
The demand for loanable funds is downward sloping because the____ the interest rate, the_____ the number of profitable investment projects a firm can undertake, and the the____quantity demanded of Ioanable funds. A. lower; greater; greater B. lower; smaller; greater C. greater; greater; greater
A. lower; greater; greater
The demand for loanable funds is downward sloping because the______ the interest rate, the_____ the number of profitable investment projects a firm can undertake, and the the___quantity demanded of Ioanable funds. A. lower; greater; greater B. lower; smaller; greater C.greater; greater; greater D. greater; smaller; greate
A. lower; greater; greater
The short run aggregate supply curve has a(n) slope because as prices of_______ rise,______prices of rise more slowly. A. positive; final goods and services; inputs B. infinite; final goods and services; inputs C. infinite; inputs; final goods and services
A. positive; final goods and services; inputs
All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except? A. unions are successful in pushing up wages. B. contracts make prices and wages "sticky." C. menu costs make some prices sticky
A. unions are successful in pushing up wages.
The ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources.
Absolute advantage.
c
According to the income effect when the price of automobiles rises, people buy fewer automobiles because: a. they substitute other forms of transportation for driving b. the nominal amount of their paychecks is smaller c. the purchasing power of their income is reduced d. their demand for automobiles is very elastic.
a
According to the law of demand, if: a. product price increases, quantity demanded will decrease b. consumer income increases, quantity demanded will increase c. product price increases, quantity demanded will increase d. consumer income increases, quantity demanded will decrease e. supply increases, demand will increase
D
According to the law of supply A- there is a positive relationship between price and quantity supplied B- as the price of a product increases, firms will supply less of it to the market C- as the price of a product increases, firms will supply more of it to the market D- A and C
An inquery into the nature anc causes of wealth of nations is a book by
Adam SMith
C
Adam Smith says "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect or dunner, but from regard to their own interest." What does Smith mean? A- Following government regulations, entrepreneurs produce goods and services most desired by their customers for the market to function properly B- Pursuing the interest of their customers, entrepreneurs produce the goods and services most desired by their customers for equality C- Pursuing their own self-interest, entrepreneurs produce the goods and services most desired by their customers for financial reward D- Acting irrationally, entrepreneurs produce the goods and services most desired by their customers with no apparent reward in return
C
Alzania produces and consumes 500,000 tons of cotton during a year. Reports indicate that Alzania's neighbor, which also employs the same number of people in the cotton industry, consumed 400,000 tons of cotton. This lead industry experts to believe that Alzania had an absolute advantage in the production of cotton over its neighbor. Which of the following, if true, could weaken this view? A- The cotton industry in Alzania is heavily regulated by the government B- Alzania is a closed economy C- Alzania's neighbor exported half its production of cotton that year D- Alzania's neighbor has been producing cotton longer E- Workers in Alzania have a higher productivity due to better education and training
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.
c
An example of price discrimination is the price charged for: a. an economics textbook at a campus bookstore b. gasoline c. theater tickets that offer lower prices for children d. postage stamp
c
An improvement in a firm's technology that improves productivity results in a (an) : a. leftward shift of the supply curve b. upward movement along the supply curve c. willingness to supply a larger quantity than before at any given price d. downward movement along the supply curve
a
An increase in human capital causes the demand for labor curve a. to shift to the right. b. to shift to the left. c. not to shift. d. None of the above occurs.
Increased production leads to a lower price, which in turn increases demand. This is referring to
An increase in quantity demanded
d
Any cost that remains unchanged as output changes represents a firm's a. Opportunity cost b. Marginal cost c. Total cost d. Fixed cost
b
As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is: a. diminishing returns have set in b. the division of labor creates greater productivity c. the firm has hired another boat d. all tasks are shared by all workers e. less qualified workers are becoming available
b
As presented in the text, how is the federal income tax structured? a. All taxpayers pay the same tax rate. The dollar amount of the tax is equal to this tax rate times their taxable income. b. The rate at which income is taxed increases as income increases. Additional amounts of income are taxed at ever greater rates. c. The rate at which income is taxed decreases as income increases. Additional amounts of income are taxed at ever lower rates. d. Most taxpayers pay taxes only on a portion of their incomes, not on their entire incomes.
b
As the population increases, a. the labor supply curve shifts to the left. b. the labor supply curve shifts to the right. c. the labor supply curve does not shift. d. none of the above occurs.
How does a consumer surplus change as the equilibrium price of a good falls and rises?
As the price of a good rises the consumer surplus decreases, as the price of a good falls the consumer surplus increases.
How does the producer surplus change as the equilibrium price of a good falls and rises?
As the price of a good rises the producer surplus increases, as the price of a good falls the producer surplus decreases.
a
As the price of the final product increases, the demand for labor curve a. shifts to the right. b. shifts to the left. c. does not shift. d. None of the above occurs.
d
As the wage increases, the demand for labor curve a. shifts left. b. shifts right. c. does not shift, but the quantity demanded of labor increases. d. does not shift, but the quantity demanded of labor decreases.
a
Assume that an industry that began as a perfectly competitive industry becomes a monopoly. Which of the following describes a change in the market as a result of becoming a monopoly? Compared to when the industry was perfectly competitive, the monopolist will a. charge a higher price and produce less output. b. charge a higher price and increase consumer surplus. c. produce less output and decrease producer surplus. d. produce more output and increase producer surplus.
c
Assume that oranges and peaches can both be grown on the same type of land, a decrease in the price of peaches, other things being equal, will cause a (an): a. upward movement along the supply curve for oranges b. downward movement along the supply curve for oranges c. rightward shift of the supply curve for oranges d. leftward shift of the supply curve for oranges
d
Assume the price of Advil increases. As a result, you decrease the quantity of Advil purchased each month and purchase more Tylenol. This is an example of the: a. Income effect b. Utility effect c. consumption effect d. substitution effect
b
At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is: a. perfectly elastic b. elastic, but not perfectly elastic c. unit elastic d. inelastic
5. Which of the following displays these two characteristics: rivalry and nonexcludability? A) a private good. B) a common resource. C) a quasi-public good. D) a public good.
B) a common resource
43. Under the European Union's tradable carbon emissions rights scheme, utilities are given a set level of permits to emit carbon dioxide. If a utility wants to pollute more than its allowance it could buy more permits in the market. Under what situation will a utility that wants to pollute more than its allowance not purchase additional permits? A) if there is an excess demand for permits in the market B) if it is cheaper to switch from heavy polluting energies to cleaner fuels than to purchase pollution permits C) if it is cheaper to burn heavy polluting energies than to switch to cleaner fuels D) if the market price of a permit is so low that it has virtually no resale value
B) if it is cheaper to switch from heavy polluting energies to cleaner fuels than to purchase pollution permits
4. Which of the following activities create a negative externality? A) graduating from college B) keeping a junked car parked on your front lawn C) cleaning up the sidewalk on your block D) repainting the house you live in to improve its appearance
B) keeping a junked car parked on your front lawn
51. The efficient output level of a public good occurs where the A) greatest number of free riders occurs. B) marginal cost of producing the last unit is equal to the marginal benefit realized by consumers. C) marginal cost of production is at its lowest. D) total cost of production is affordable.
B) marginal cost of producing the last unit is equal to the marginal benefit realized by consumers.
. Which of the following displays nonrivalry and nonexcludability in consumption? A) quasi-public goods B) public goods C) common resources D) private goods
B) public goods
5. A negative externality exists if A) there are price controls in a market. B) the marginal social cost of producing a good or service exceeds the private cost. C) there are quantity controls in a market. D) the marginal private cost of producing a good or service exceeds the social cost
B) the marginal social cost of producing a good or service exceeds the private cost.
56. Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because A) the social cost of harvesting the fish is lower than the private cost. B) the private cost of harvesting the fish is lower than the social cost. C) the private benefit of harvesting tuna is lower than the social benefit of harvesting it. D) the private benefit of harvesting tuna is higher than the social benefit of harvesting it.
B) the private cost of harvesting the fish is lower than the social cost
8. Common resources differ from public goods in that A) common resources are collectively owned by a group of people while public goods are government owned. B) unlike public goods, common resources are rivalrous in consumption. C) common resources are resources that cannot be renewed but the production of public goods can be increased any time. D) common resources are non-excludable while public goods are excludable to those who do not pay for the good.
B) unlike public goods, common resources are rivalrous in consumption
A perfectly competitive market is a market that meets the conditions of? A-(1) few buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market. B- (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market. C- (1) many buyers and sellers, (2) all firms selling differentiated products, and (3) no barriers to new firms entering the market.
B- (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Microeconomics is the study of? A- firms as individual units excluding how these firms interact with one another. B- how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. C- "small" (less than $100,000) economic transactions in the econome.
B- how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
One of the basic facts oflife is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls? A-rationality. B- scarcity. C-economics. D-the market.
B- scarcity.
What two factors are the keys to determining labor productivity. A- the average level of education of the workforce and the price level B- technology and the quantity of capital per hour worked C-the business cycle and the growth rate of real GDP D-the growth rate of real GDP and the interest rate
B- technology and the quantity of capital per hour worked
Market price is determined by A- supply only. B-both supply and demand. C- demand only. D- neither supply nor demand
B-both supply and demand.
______occurs when a good or service is produced at the lowest possible cost._______ occurs when production is in accordance with consumer preferences. A-allocative efficency, productive effency B-productive efficecy , allocative efficency C-market surplus, productive effiency
B-productive efficecy , allocative efficency
Opportunity cost is? A- when consumers and firms use all available information as they act to achieve their goal B-the highest valued alternative that must be give up to engage in an activity. C-the idea that because of scarcity, producing more of one good or service means producing less of another good or service
B-the highest valued alternative that must be give up to engage in an activity
Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply? A. Short run aggregate supply shifts to the right except during periods when workers and firms expect higher wages. B. Aggregate demand and potential real GDP decrease continuously. C. Aggregate demand shifts to the right during most periods.
B. Aggregate demand and potential real GDP decrease continuously.
An economic growth model explains? A. the growth rate of the price level over time. B. changes in real GDP per capita in the long run. C. how changes in the money supply affect real interest rates
B. changes in real GDP per capita in the long run.
The overall mortality rate in the US decreased by more than 25% b/t 1981 & 2009. Which of the following is not a cause of this decline.... A. cancer B. diabetes C. heart attacks D. liver disease E. smoking
B. diabetes
Inflation tends to during the expansion phase of the business cycle and during the recession phase of the business cycle. A. decrease; decrease further B. increase; decrease C.decrease; increase D. increase; increase further
B. increase; decrease
Inflation tends to____ _during the expansion phase of the business cycle and________ during the recession phase of the business cycle. A. decrease; decrease further B. increase; decrease C. decrease; increase
B. increase; decrease
As the economy nears the end of an expansion, which of the following do we typically see? A. falling wages relative to output prices B. rising interest rates C- rising firm profits D. rising levels of firm investment
B. rising interest rates
As the economy nears the end of an expansion, which of the following do we typically see? A. falling wages relative to output prices B. rising interest rates C. rising firm profit
B. rising interest rates
What two factors are the keys to determining labor productivity. A. the average level of education of the workforce and the price level B. technology and the quantity of capital per hour worked C. the business cycle and the growth rate of real GDP
B. technology and the quantity of capital per hour worked
"Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers.
c
Because the monopolist faces a downward-sloping demand curve, its marginal revenue curve is a. horizontal. b. upward sloping. c. downward sloping. d. none of the above.
6. What happens to the price elasticity of demand along a linear downward-sloping demand curve?
Becomes more elastic as price lowers
A market in which buying and selling take place at prices that violate government price regulations.
Black market.
3. What is a market failure? A) It refers to a breakdown in a market economy because of widespread corruption in government. B) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. C) It refers the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. D) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost
C) It refers the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
61. Global warming refers to the effect of global pollutants such as carbon dioxide on climates on the earth. Climate-induced changes in temperatures affect, among other things, agriculture. Which of the following is a reason why policymakers are still debating if this problem should be addressed and how it should be addressed? A) Scientists agree about the damage caused by carbon emissions but disagree about the methods of reducing emissions. B) The marginal cost of reducing carbon emissions is known with certainly but the marginal benefit from reduction is not known with certainty. C) There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn informs the benefits from reduction, and what methods to use which in turn determines the cost of reduction D) The marginal cost of reducing carbon emissions is not known with certainly but the marginal benefit from reduction is known with certainty
C) There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn informs the benefits from reduction, and what methods to use which in turn determines the cost of reduction
1. An externality is A) a cost paid for by the producer of a good or service. B) a benefit realized by the purchaser of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.
C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service
32. In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group? A) impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee B) impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners C) dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park. D) allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs
C) dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park
29. The Coase theorem states that A) government intervention is always needed if externalities are present. B) a free market equilibrium is the best solution to address externalities. C) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. D) assigning property rights is the only thing the government should do in a market economy
C) if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.
41. Compared to the command and control approach to pollution control, the tradable emissions allowance system is A) less efficient, because the tradable emissions allowance system gives firms the right to pollute a certain amount. B) less efficient, because it does not raise funds for the government whereas under the command and control approach, firms are penalized for non-compliance. C) more efficient, because firms with low costs of pollution control would pollute the least and sell their extra permits to other firms with higher costs of pollution control. D) more efficient, because there are implementation and monitoring costs with the tradable emissions allowance system.
C) more efficient, because firms with low costs of pollution control would pollute the least and sell their extra permits to other firms with higher costs of pollution control.
21. A market demand curve reflects the A) social benefits of consuming a product. B) the sum of private and social benefits of consuming a product. C) private benefits of consuming a product. D) external benefits of consuming a product
C) private benefits of consuming a product.
. An external cost can be calculated as the difference between A) the social cost of production and the social benefit of production. B) the private cost of production and the social benefit of production. C) the social cost of production and the private cost of production. D) a producer's cost of production and the price at which the good is sold.
C) the social cost of production and the private cost of production
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A- real GDP. B- technology. C-. labor productivity. D-human capital
C-. labor productivity.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions? A- One, what goods and services will be produced domestically? Two, how will the goods and services be produced? Three, is the distribution of goods and services fair? em. B-One, what goods and services will be produced? Two, how will the goods and services be produced? Three, is the distribution of goods and services fair? C-.One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced
C-.One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced
According to the law of demand there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. Why? A-When the price of a good increases, consumers purchase complementary goods that are now relatively less expensive. B-When price increases, demand decreases. C-When the price of a good increases, consumers' purchasing power decreases, and they cannot buy as much of the good as they did prior to the price change.
C-When the price of a good increases, consumers' purchasing power decreases, and they cannot buy as much of the good as they did prior to the price change.
Which of the following is one explanation as to why the aggregate demand curve slopes downward? A. Decreases in the price level raise the interest rate and increase investment spending. B. Decreases in the price level raise the interest rate and increase consumption spending. C. Decreases in the price level raise real wealth and increase consumption spending.
C. Decreases in the price level raise real wealth and increase consumption spending.
Which of the following is not one of the three sources of technological change? A. better means of organizing and managing production B. better machinery and equipment C. additional amounts of existing capital D. increases in human capital
C. additional amounts of existing capital
The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as? A. monetary policy. B. fiscal policy. C. an automatic mechanism
C. an automatic mechanism
Stagflation occurs when? A. inflation rises and GDP rises. B. inflation falls and GDP rises. C. inflation rises and GDP falls.
C. inflation rises and GDP falls.
When the government runs a budget deficit, we would expect to see that A. private saving will fall. B. G+TR<T. C. investment will fall. D.public saving is positive.
C. investment will fall.
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A. real GDP. B. technology. C. labor productivity.
C. labor productivity.
According to new growth theory, A. Capital per hour worked (KJL) centrally-planned economies are the most efficient. B. economic growth is determined by forces outside the control of the market system. C. technological change is influenced by economic incentives.
C. technological change is influenced by economic incentives.
Potential GDP refers to? A. the extent to which real GDP is above or below nominal GDP. B. the level of GDP attained by the country with the highest growth in real GDP in a given year. C. the level of GDP attained when all firms are producing at capacity
C. the level of GDP attained when all firms are producing at capacity
The economic growth model predicts that A. lower - income industrial countries will forever be unable to catch up to higher - income industrial countries. B. the per - worker production function of poor countries will be flatter than the per - worker production function of rich countries. C. the level of real GDP per capita in poor countries will grow faster than in rich countries.
C. the level of real GDP per capita in poor countries will grow faster than in rich countries.
Knowledge capital is nonrival in the sense that A. firms do not compete to be the first to develop new technologies. B. no single company can be excluded from the benefits of new technologies. C. two people can use the same knowledge to develop and produce a product
C. two people can use the same knowledge to develop and produce a product
Long run macroeconomic equilibrium occurs when? A. structural and frictional unemployment equals zero. B. output is above potential GDP. C.aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve.
C.aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve.
b
Campbell Soup agrees to sell its brand to a grocery chain only if the chain also agrees to buy a minimum number of cases of its V-8 juice. This is an example of a. a resale price maintenance agreement b. a tying agreement c. exclusive dealing d. price discrimination
One of the most important differences among health care systems in different countries is how people pay for the health care they recieve. What country has a single-payer health care system
Canada
The requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant.
Ceteris paribus
A change in the quantity supplied is caused by a
Change in Price, movement along the supply curve
A model that illustrates how participants in markets are linked.
Circular-flow diagram.
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors.
Comparative advantage.
Marginal Analysis
Comparing marginal cost and marginal benefit
A market equilibrium with many buyers and sellers.
Competitive market equilibrium.
Houses and household appliances are considered to be _________ goods
Complementary Good
Goods and services that are used together.
Complements.
e
Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is: a. making an economic profit of 10 b. an example of monopolistic competition c. going to go out of business in the long run d. a monopolist for a product with relatively inelastic demand e. perfectly competitive in long-run equilibrium
d
Consider a regulated natural monopoly. If the regulatory commission wants to establish a fair-return price, then it should set a price celing where the demand curve crsses the monopoly's long-run: a. marginal revenue curve b. average revenue curve c. marginal cost curve d. average cost curve
a
Consider the demand for cigarettes. Suppose the government increases the cost of cigarettes over time? If the price of cigareetes increases then the quantity of cigarettes demanded will a. decrease and this effect will likely become larger over time b. likely never change either intially or over time. c. decrease, but this effect will likely become smaller over time d. decrease, and this effect will likely remain constant over time e. increase, and this effect will likely become larget over time
b
Consider the market for BP supreme grade gasoline, all BP grades of gasoline, and all gasoline. For which of these three markets will the price elasticity of demand be most elastic? The price elasticity will be most elastic for a. All gasoline, the for BP supreme grade gasoline, and then for all BP grades. b. BP supreme grade gasoline, then for all BP grades of gas, and then for all gasoline c. BP supreme grade gasoline, then all gasoline, and then for all BP grades of gas d. All bp grades of gasoline, then bp supreme gas, then all gas
A
Consider the supply of crude oil on the world market. In August 2011, the price of oil was roughly $80 per barrel. Which of the following changes would increase the supply of oil? The oil supply curve would shift to the right if... A- future oil prices were expected to be lower B- the cost of transporting oil were to increase C- the world price of oil were to increase D- the prices of substitutes were to increase E- the number of oil producing countries were to decrease
- Net -Total
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
3. What is the relationship between willingness to pay (WTP), market price and consumer surplus (CS)? For example, if I am WTP $10 for an item and the market price is $12, will I buy the item? If I am WTP $10 for an item and the market price is $8, will I buy the item and if I do, what is my CS? If I am WTP $10 for an item and the market price is $10, will I buy the item and if I do, what is my CS?
Consumer surplus is the difference between willingness to pay and market price
The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Consumer surplus.
How do market economies ultimately determine what goods and services are produced, how the goods and services will be produced, and who will recieve the goods and services?
Consumers determine what goods and services are produced, firms determine how to produce them, and markets determine who will recieve them
Which of the following is true of public goods? a. The market mechanism helps to signal the quantity that is demanded by the public. b. Payment for consumption is efficiently provided by market prices. c. Consumption by one person does not preclude consumption of the same good by another person. d. The public sector is guided to produce the correct quantity by market prices. e. Voluntary contributions will be sufficient to finance the production of public goods.
Consumption by one person does not preclude consumption of the same good by another person.
c
Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR=MC=$3 when output is 700 necklaces. An economist studying this information can conclude that: a. The producer is charging a price of $3 b. Economic profit is $2,100 c. The producer charges a price greater than $3 d. new firms will want to enter e. this producer should produce more than 700 necklaces.
55. Which of the following exemplifies the tragedy of the commons? A) The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. B) Residents in the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. C) Canadian citizens receive free universal health care administered by provincial governments. D) The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
D) The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
33. In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of A) a tradable exchange contract. B) a Pigouvian solution to a positive externality problem. C) command and control policy. D) a Coasian solution to a positive externality problem.
D) a Coasian solution to a positive externality problem
36. Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except A) a decrease in market supply of the good. B) an increase in the equilibrium market price. C) a decrease in the equilibrium quantity produced and consumed. D) an increase in the demand for the good
D) an increase in the demand for the good.
6. Private costs A) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good while social costs are borne by government. D) are borne by producers of a good while social costs are borne by society at large.
D) are borne by producers of a good while social costs are borne by society at large.
39. Government imposed quantitative limits on the amount of pollution firms are allowed is an example of A) a tradable emission allowance system of pollution control. B) the Pigovian method of pollution control. C) Coasian solution to pollution reduction. D) command and control approach to pollution reduction
D) command and control approach to pollution reduction
27. In which of these situations is there no deadweight loss? A) free market production of a private good with a negative externality B) free market consumption of a private good with a positive externality C) consumption of a common resource without government restrictions D) free market production and consumption of a private good without any externalities
D) free market production and consumption of a private good without any externalities
2. Which of the following is a source of market failure? A) a lack of government intervention in a market B) unforeseen circumstances which leads to the bankruptcy of many firms C) an inequitable income distribution D) incomplete property rights or inability to enforce property rights
D) incomplete property rights or inability to enforce property rights
35. An advantage of imposing a tax on the producer that generates pollution is that A) it will eliminate pollution. B) the government can keep tabs on exactly what is produced in an industry. C) a producer can pass the cost of the pollution to consumers. D) it forces the polluting producer to internalize the external cost of the pollution.
D) it forces the polluting producer to internalize the external cost of the pollution
53. According to an article in the Wall Street Journal, economist Paul Romer of Stanford University has argued: "The market mechanism and property rights are excellent at conserving scarce resources and putting them to the most profitable use. They aren't so good at encouraging the production and distribution of new ideas, which are critical to progress." Source: David Wessel, "Precepts from Professor Summers," Wall Street Journal, October 17, 2002. What characteristics of the production and distribution of new ideas might make it difficult for the market to produce the optimal amount? A) rivalry and non-excludability B) rivalry and excludability C) rivalry and excludability D) non-rivalry and non-excludability
D) non-rivalry and non-excludability
54. The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) there is rivalry in consumption. C) people do not internalize an externality. D) people overuse a common resource
D) people overuse a common resource.
28. Economists argue that the level of pollution should be A) ignored because it has always been present since the beginning of history. B) best determined by elected officials who can speak on behalf of the public. C) reduced completely to zero because by definition, it is a negative external effect. D) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.
D) reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society
37. Governments can increase the consumption of a product that creates positive externalities by A) assigning property rights to the producers of the product. B) taxing the production and consumption of the product. C) convincing everyone to consume the good. D) subsidizing the production of the product so that the supply is increased and market price is reduced
D) subsidizing the production of the product so that the supply is increased and market price is reduced.
8. The social cost of cutting trees for firewood in a government forest is A) the increased likelihood of flooding as more trees are cut. B) the marginal costs of cutting the last tree. C) opportunity cost to the individual of cutting the wood. D) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees.
D) the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees
10. A positive externality causes A) the marginal social benefit to be equal to the marginal private cost of the last unit produced. B) the marginal private benefit to exceed the marginal social cost of the last unit produced. C) the marginal social benefit to be less than the marginal private cost of the last unit produced. D) the marginal social benefit to exceed the marginal private cost of the last unit produced.
D) the marginal social benefit to exceed the marginal private cost of the last unit produce
9. Which of the following represents the economic benefit of production when firms produce goods that create positive externalities? A) the difference between social benefits and private benefits created by the goods. B) the sum of private benefits from consumption. C) the external benefits created by the goods. D) the sum of private benefits and external benefits created by the goods.
D) the sum of private benefits and external benefits created by the goods.
14. When there is a negative externality in a free market, A) too little of the good is produced and consumed. B) an economically efficient level of the good is produced and consumed. C) a productively efficient level of the good is produced and consumed. D) too much of the good is produced and consumed.
D) too much of the good is produced and consumed
30. If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered A) external costs. B) social costs of the pollution. C) marginal benefits. D) transaction costs
D) transaction costs.
Potential GDP refers to? A-the difference between the highest level of real GDP per quarter and the lowest level of real GDP per quarter within any given year. B- the extent to which real GDP is above or below nominal GDP. C- the level of GDP attained by the country with the highest growth in real GDP in a given year. D- the level of GDP attained when all firms are producing at capacity
D- the level of GDP attained when all firms are producing at capacity
A good measure ofthe standard of living is A. total real GDP_ B. nominal GDP per capita. C. total nominal GDP. D. real GDP per capita.
D. real GDP per capita.
A good measure ofthe standard ofliving is A. total real GDP_ B. nominal GDP per capita. C. total nominal GDP. D. real GDP per capita.
D. real GDP per capita.
When a SUPPLY line shifts to the right the equilibrium price will
DECREASE and the equilibrium quantity will increase.
- C & E
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram to the right, deadweight loss is equal to the area(s):
The reduction in economic surplus resulting from a market not being in competitive equilibrium.
Deadweight loss.
The price of Burger King's Whopper hamburger declines. This will cause demand for McDonald's Big Mac to
Decrease
McDonald's eliminates 1.00 off coupons. This will cause a movement along the ____ curve for McD's Big Mac's
Demand
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Demand curve.
A table showing the relationship between the price of a product and the quantity of the product demanded.
Demand schedule.
The characteristics of a population with respect to age, race, and gender.
Demographics.
Can economic analysis provide a final answer to the ? of whether should intervenein markets by opposing price ceilings and price floors? Why, why not?
Economic Analysis cannot provide such an answer bc it seeks to address positive aquestions such as "what is".
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Why or Why not?
Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is."
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Why or why not?
Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is."
It's marginal cost of production and in which the the sum of consumer and producer surplus is at a maximum.
Economic efficiency is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to:
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
Economic efficiency.
The ability of the economy to produce increasing quantities of goods and services.
Economic growth.
A simplified version of reality used to analyze real-world economic situations.
Economic model.
-Consumer -Producer -Maximum -Equilibrium
Economic surplus in a market is the sum of ____ surplus and _____ surplus. In a competitive market with many buyers and sellers and no government restriction, economic surplus is at a _______ when the market is in ______.
The sum of consumer surplus and producer surplus.
Economic surplus.
Something measurable that can have different values, such as the wages of software programmers.
Economic variable.
The study of the choices people make to attain their goals, given their scarce resources.
Economics
What is Economics?
Economics is the study of how scarce resources are allocated among competing uses
D
Economies of scale are created by greater efficiency of capital and by: a. longer chains of command in management b. better wages for labor c. smaller plant sizes d. increased specialization of labor
Buyers and sellers use all available information to achieve their goals.
Economists assume people are rational.
people act in response to economic incentives
Economists assume people respond to economic incentives
A
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when: A- marginal benefit equals marginal cost B- marginal benefit is maximized C- marginal benefit is greater than marginal cost D-marginal cost is zero
Someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services.
Entrepreneur.
The fair distribution of economic benefits
Equity.
In a study the USA had an ABSOLUTE ADVANTAGE over Britain in that it could produce all the goods needed without importing. What gain would the USA have to import from Britain?
Even with the AA the USA would benefit from importing those products that Britain had the comparative advantage
Which of the following best describes scarcity?
Every choice involves an opportunity cost.
e
Example of a good or service having the effect of a positive externality a. Medical research b. Education c. Pollution d. A big mac e. Both a and b
Which of the following statements is true?
Externalities can never refer to costs borne by the seller.
T or F. Consumer surplus and producer surplus measure the total benefit consumers and producers receive from participating in a market.
FALSE. Consumer surplus measures the NET benefit consumers receive, and producer surplus measures the NET benefit producers receive.
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
Factor markets.
The inputs used to make goods and services.
Factors of production.
Disequilibrium occurs when quantity demanded equals quantity supplied. a. True b. False
False
a
Fill in the blank. A tax is efficient if it imposes __________ relative to the tax revenue it raises. a. a small excess burden b. a large excess burden c. a large deadweight loss d. none of the above
b
Fill in the blank. In 2012, individual income taxes and social insurance taxes together made up about __________ of the tax revenue received by the government. a. 20 percent b. 78 percent c. 30 percent d. None of the above is correct.
b
Fill in the blank. The income distribution in the U.S. is more__________ than in other high income countries. a. equal b. unequal c. flat d. None of the above is true.
a
Fill in the blanks. Marginal revenue is __________, and marginal revenue product of labor is __________ a. the change in total revenue the firm receives from selling one more unit of output; the change in the firm's revenue from hiring one more worker b. the change in the firm's revenue from hiring one more worker; the change in total revenue the firm receives from selling one more unit of output c. the change in total revenue the firm receives from selling one more unit of output; the change in total cost from selling one more unit of output d. the change in the firm's revenue from hiring one more worker; the change in the firm's revenue from hiring one more worker
d
Fill in the blanks. A Lorenz curve shows incomes from __________ on the horizontal axis and the __________ of income earned by each percentage of households on the vertical axis. a. from highest to lowest; fraction b. from highest to lowest; cumulative fraction c. from lowest to highest; fraction d. from lowest to highest; cumulative fraction
a
Fill in the blanks. A progressive tax is a tax for which people with lower incomes pay __________ percentage of their incomes in tax than do people with higher incomes, whereas a regressive tax is a tax for which people with lower incomes pay __________ percentage of their incomes in tax than do people with higher incomes. a. a lower; a higher b. a higher; a lower c. a lower; a lower d. a higher; a higher
d
Fill in the blanks. In long-run equilibrium, a monopolist will have a _________ deadweight loss, and a monopolistically competitive firm will have a _________deadweight loss. a. zero; zero b. zero, positive c. positive; zero d. positive; positive
c
Fill in the blanks. Increases in the labor productivity cause the demand for labor curve to __________, which leads to __________ in the equilibrium wage and __________ in the equilibrium number of workers employed. a. increase; an increase; a decrease b. increase; a decrease; an increase c. increase; an increase; an increase d. None of the above is true.
c
Fill in the blanks. Labor unions are organizations of __________ that have the legal right to bargain with __________ about wages and working conditions. a. employers; employees b. employers; employers c. employees; employers d. None of the above is true.
c
Fill in the blanks. Logrolling refers to the situation where a member of Congress votes to __________ in exchange for __________ from other members on other bills. a. reject a bill; monetary reward b. reject a bill; getting a job c. approve a bill; favorable votes d. None of the above is correct.
c
Fill in the blanks. The additional output a firm produces as a result of hiring one more worker is __________, whereas the change in the firm's revenue as a result of hiring one additional worker is __________. a. marginal cost; the marginal product of labor b. marginal revenue; the marginal revenue product of labor c. the marginal product of labor; the marginal revenue product of labor d. the marginal revenue product of labor; the marginal product of labor
c
Fill in the blanks. When the elasticity of demand for a product is __________ the elasticity of supply, consumers pay __________ of the tax on the product. a. larger than; the majority b. smaller than; very little c. smaller than; the majority d. none of the above
What incentive does the market system provide to encourage self interest?
Financial reward
B
Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or machines. For example A- a local service station has to choose whether to provide car repair services using more diagnostic computers to support their auto mechanics and fewer tools to support their auto mechanics or more tools to support their auto mechanics and fewer diagnostic computers to support their mechanics. B- Many times in the past several decades, firms may have chosen between a production method in the US that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines C- Many times in the past several decades, firms may have chosen between a production method in the US that uses fewer machines and more workers and a production method in China that uses more machines and fewer workers D- Movie studios have to choose whether to produce animated films using more highly skilled animators or fewer highly skilled animators and more low-skill animators
d
Firms in a monopolistically competitive market structure maximize their profit by producing an output where: a. price equals average total cost b. marginal cost equals average total cost c. marginal cost equals price d. marginal revenue equals marginal cost
b
For a market to be perfectly competitive, there must be a. Many buyers and one seller, with the firm producing a product with no close substitutes, and barriers to new firms entering the market. b. Many buyers and sellers, with all firms selling identical products and no barriers to new firms entering the market. c. Many buyers and sellers, with all firms selling identical products and substantial barriers to new firms entering the market. d. Many buyers and sellers, selling similar but not identical products with some barriers to entry.
a
For a normal good, the income elasticity of demand will be a. Positive, but for an inferior good, it will be negative b. Positive or negative, but for an inferior good the income elasticity will be zero c. Zero, but for an inferior good, the income elasticity will be one d. Elastic, but for an inferior good, the income elasticity will be elastic e. Negative, but for an inferior good the income elasticity will be positive
A market where the government does not control the production of goods and services
Free Market
A market with few government restrictions on how a good or service can be produced or sold or how a factor of production can be employed.
Free market.
A
From the list below, select the variable that will cause the demand curve to shift: A- consumer income B- technology and productivity C- the number of firms in the market D- the cost of raw materials
Complements
Goods and services that are used together
The Participants in the circular flow diagram that are the greatest importance that determines what goods and services are produced
Households
D
How can a country gain from specialization and trade? A- a country can specialize in producing that for what it has an absolute advantage and then trade for other needed goods and services B- a country can specialize in producing that which is most scarce and than trade for other needed goods and services C- a country can specialize by using all available resources to produce goods and service to avoid trading D- a country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services E- a country can specialize by using all available resources to invest in capital goods and promote economic growth
Externalities and market failure will result from market failure.
How do property rights affect externalities and market failure?
a
How is the separation of ownership from control related to the principal-agent problem? a. The agents (managers) may pursue their own interests rather than the interests of the principals (shareholders). b. The agents (consumers) may pursue their own interests rather than the interests of the principals (firms). c. The agents (shareholders) may pursue their own interests rather than the interests of the principals (managers). d. The agents (firms) may pursue their own interests rather than the interests of the principals (consumers).
which of the following best describes the concept of consumer surplus?
I was all ready to pay $300 for a new leather jacket but I ended up paying only $180 for the same jacket
When the DEMAND line shifts to the right the equilibrium price will
INCREASE and the Equilibrium qty will INCREASE as well
What is the difference between an increase in demand and an increase in QTY demanded?
INcrease in demand is a rightward shift of the demand curve, while an increase in qty demanded is movement along a given demand curve.
b
If Congress decides to reduce the tax per pack paid by sellers of cigareetes, other things being equal, the price of cigarettes will fall. This fall in prices can be attributed a (an): a. upward movement along the supply curve for cigarettes. b. rightward shift of the supply curve for cigarettes c. downward movement along the demand curve for cigarettes d. leftward shift of the supply curve for cigarettes.
b
If a CD offers a 3 percent interest rate and the interest is subject to a tax rate of 33 percent, what is the after-tax return on the investment in the CD? a. 1 percent b. 2 percent c. 4 percent d. − 30 percent
b
If a competitive firm is losing money then it should: a. always shut down b. shut down if its losses are greater than total fixed costs c. shut down if its total fixed costs are greater than loses d. raise its prices
d
If a firm equates MR and MC, then: a. TR is at a maximum, and TC is at a minimum b. output is at a maximum c. losses are at a maximum d. profits are at a maxiumum or losss are at a minimum e. both TR and TC are at a maximum
d
If a firm has no ability to select the price of its product, it: a. will go out of business due to losses b. is a price-maker c. cannot maximize profit d. has a horizontal individual demand curve.
e
If a firm has total revenue of $200 million, explicit costs of $190 million, and impicit costs of $30 million, its economic profit is: a. $200 million b. $70 million c. $10 million d. -$10 million e. -$20 million
a
If a firm shuts down in the short run, it will: a. incur losses equal to its fixed costs b. produce at the output level where MC = MR c. reduce its losses to zero d. do this because P > AVC e. have total revenue greater than total fixed costs
e
If a monopolistically competitive firm can earn a profit, it will increase production until: a. MR > AVC b. MR = ATC c. C > MR d. MR = AR e. MR = MC
c
If a supplier faces a perfectly horizontal demand curve and sets his price slightly higher than the demand curve itself, he can expect: a. no change in his total revenues b. everyone to begin buying his product c. a complete loss of revenues d. a new demand curve e. a relative increase in income
Private solutions may reduce or correct market failures.
If an externality is present, resulting in market failure, then:
c
If an industry is an oligopoly, then there a. Is only one firm b. are many firms each producing a homogenous product c. are only a few firms d. are many firms each producing a homogenous product.
a
If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect: a. less pizza to be sold at a higher price b. more pizza to be sold at a higher price c. less pizza to be solder at a lower price d. more pizza to be sold at a lower price e. the same amount of pizza to be sold at the same price
b
If the Gini coefficient is 1, this means a. that the income distribution is completely equal. b. that the income distribution is completely unequal. c. that there is no income distribution. d. none of the above
Which of the following is not an example of the fallacy of composition? a. If I can get to work fastest by taking the interstate, so can everyone else. b. If you can only get away from it all by going to Colfax, everyone who needs to get away should go to Colfax. c. If the quickest way to get off a sinking ship is to run to the nearest lifeboat, all the passengers should do this. d. If the best TV reception can be gotten with a Couch Potato antenna, then everyone should have a Couch Potato antenna. e. If I can get a better view by standing up at the baseball game, everyone gets a better view by standing up.
If the best TV reception can be gotten with a Couch Potato antenna, then everyone should have a Couch Potato antenna
b
If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread, then: a. more bread will be produced b. there will be a shortage of bread c. the demand for bread will decrease d. producers will charge $0.50 for bread e. $0.50 in tax revenue will be paid for each unit of bread
Does and increase in an economic surplus in a market always mean that economic efficiency in the market has increased?
If the marginal benefit of consumption increases but market output remain unchanged, then economic surplus and deadweight loss would both increase, decreasing economic efficiency.
a
If the substitution effect is larger than the income effect, then the labor supply curve is a. upward sloping. b. downward sloping. c. vertical. d. horizontal.
c
In an oligopoly industry, price: a. will be lower than the competitive price, due to cost savings b. will excedd the monopoly price, due to the destructiveness of competitive forces. c. this is the answer d. none of the above.
d
In selecting which taxes to use, governments take into account a. economic efficiency. b. ability to pay principle. c. horizontal equity principle. d. all of the above.
- C - B & D
In the diagram, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area ____ and the deadweight loss is equal to areas ____ & _____.
- B - C & E
In the diagram, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area ___ and the deadweight loss is equal to areas ____ & ____.
- D & F - E & G
In the diagram, illustrating a per-unit tax equal to P2 minus P3, tax revenue is represented by the areas ___ & ____ and the excess burden of the tax is represented by areas ____ & ____.
- Equal to - Efficient
In the diagram, marginal benefit is ________ marginal cost at output level Q2. This output level is considered economically _________.
b
In the long-run, surviving firms in monopolistic competition earn: a. higher pure economic profits b. zero pure economic profits c. below-normal profits d. substantial economic losses.
c
In the short run, a perfectly competitive firm's most profitable level of output is where: a. marginal cost exceeds marginal revenue b. total revenue is at a maximum c. marginal cost equals marginal revenue d. all of the above
d
In the short run, average fixed cost a. is indeterminate b. stays constant c. rises d. falls
b
In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals? a. monopoly b. oligopoly c. perfect competition d. cartel
b
In which of the following situations can a firm be considered a monopoly? a. when a firm is surrounded by other firms that produce close substitutes b. when a firm can ignore the actions of all other firms c. when a firm uses other firms' prices in order to price its products d. when barriers to entry are eliminated
A market system prevents people from getting as many goods and services as they want due to their?
Income
The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.
Income effect.
If consumer surplus in a market increasrs, producer surplus must decrease.?
Incorrect. Consumer surplus (and producer surplus) could increase by decreasing dead weight loss.
If at the current quantity marginal benefit is greater than marginal costs, there will be deadweight loss in the market. However there is no deadweight cost when marginal cost is greater than the marginal benefit.
Incorrect. If marginal cost is greater than marginal benefit there will be a deadweight loss.
What is the difference between "increase in supply" and "increase in qty supplied"?
Increase in supply means the supple curve shifts to the right while increase in qty supplied means a movement along a given supply curve in response to an increase in price.
What does increasing Marginal Opportunity Costs mean?
Increasing the production of a good requires larger and larger DECREASES in the production of another good
Marginal opportunity costs
Increasing the production of a good requires larger and larger decreases in the production of another good.
A good for which the demand increases as income falls and decreases as income rises.
Inferior good.
C
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good... A- will not have a comparative advantage because it has fewer resources B- will have a comparative advantage if it produces more efficiently C- will have a comparative advantage if it has a lower opportunity cost of producing that good D- will have a comparative advantage if it is able to produce that good at a low total cost E- will have a comparative advantage if it devotes more resources toward that good's production
Herbert Hoover argued that the USA should only import products that cannot be produced here. Is this A good policy?
It is NOT a good policy bc it does not result the countries producing those goods for which they have a COMPARATIVE ADVANTAGE
What is an economic model?
It is a simplified version of some aspect of economic life used to analyze an economic issue.
Who decides what will be produced in a market economy?
It is determined by the choices that consumers, firms, and the government make.
C
It is possible for the price of water to be much lower than the price of diamonds if which of the following is true? A- the supply of diamonds is greater than the supply of water B- the supply of diamonds is a horizontal line C- the supply of diamonds and water are the same D- the supply of water is greater than the supply of diamonds E- the supply of water is vertical
Should government officials use regulations to try to provide dependable incomes to every business in the country?
It is very difficult to conceive of any scenario in which such an effort would improve economic efficiency.
What is a market failure?
It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
b
Jerome, the florist, sold 500 bridesmaid's bouqets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9, Jerome: a. Made an economic profit of $500 b. Made a loss of $500 c. Made an economic profit of $1,500 d. Made a loss of $1,500 e. Should have shut down in June
Complementary
Jiffy peanut butter and smuker's jam are considered to be _____ goods
if the price of a good increases, is the increases in the quantity of the good likely to be smaller or larger , the longer time period being looked at
LARGER
The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
Law of demand.
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
Law of supply.
d
Limited Liability means that: a. Shareholders in a corporation must pay some but not all of the liabilities of a firm b. Corporations have limited accountability for their debts c. Corporations only have limited resonsibility of their actions d. Shareholders in a corporation cannot lost more than their investment in a firm.
C
MCD's distributes $1 off coupons. This will cause A- demand for MCDs Big Mac hamburgers to shift to the right B- demand for MCDs Big Mac hamburgers to shift to the left C- a movement along the demand curve for MCDs big mac hamburgers
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Macroeconomics.
Analysis that involves comparing marginal benefits and marginal costs.
Marginal analysis.
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal benefit.
The additional cost to a firm of producing one more unit of a good or service.
Marginal cost.
c
Marginal revenue is the change in: a. total profit brought about by selling one more unit of output b. price brought about by selling one more unit of output c. total revenue brought about by selling one more unit of output d. output brought about by a $1 change in product price e. average revenue brought about by selling one more unit of output.
Mark and Charles are roommates at college. Each has written a 25-page term paper for the same English class. They are equally poor typists. Charles types his own paper and gets paid by Mark to type his, too. On the basis of the information given, which one of the following must be true? a. Mark is wealthier than Charles. b. Mark needs more time to study than Charles. c. Charles hates typing. d. Mark and Charles have different utilities for typing but place the same value on time. e. Mark's opportunity cost of typing is higher than Charles's.
Mark's opportunity cost of typing is higher than Charles's.
The point where quantity demanded is equal to the quantity supplied is known as the
Market Equilibrium
The demand by all the consumers of a given good or service.
Market demand.
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
Market economy.
A situation in which quantity demanded equals quantity supplied.
Market equilibrium.
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Market.
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Market.
New machinery and equipment would be more rapidly adopted in what kind of society?
Market. (as opposed to a centrally planned)
Is providing dependable income to dairy farmers a good policy goal for govt officials?
Maybe but only if doing so promotes economic efficiency.
A newspaper headline reads: "State Officials Take on Pricing Regulations to Try to Provide Better, Dependable Income to Dairy Farmers." Is providing dependable income to dairy famers a good policy goal for government officials?
Maybe, but only if doing so promotes economic efficiency
The study of how households and firms make choices, how they interact in markets,and how the government attempts to influence their choices.
Microeconomics
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Mixed economy.
a
Monopsony is characterized by a. the existence of one buyer to a factor of production. b. the existence of one seller to a factor of production. c. the existence of labor union in the market. d. none of the above.
An INWARD shift of a nations PPF can occur due to
Natural Disaster
If a market is in equilibrium, is it necessarily true that all potential buyers and sellers are satisfied with the market price?
No
Does it matter whether buyers or sellers are legally responsible for paying a tax?
No the market price to consumers and net proceeds to sellers are the same independent of who pays the tax
Does it matter whether buyers or sellers are legally responsible for paying a tax
No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax
Does it matter whether buyers or sellers are legally responsible for paying a tax?
No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax
Do the people who are legally required to pay a tax always bear the burden of the tax?
No. Whoever bears the burden of the tax is not affected by who is legally required to pay the tax to the government
Do the people who are legally required to pay a tax always bear the burden of the tax? Briefly explain
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government
Do the people who are legally required to pay a tax always bear the burden of the tax?
No. whoever bears the burden of tax is not affected by who legally is required to pay the tax to the govt.
Which of the following activities, if any, represents an external benefit?
None of the above
Which of the following activities, if any, represents an external cost?
None of the above
Which of the following is false?
None of the above are false; all are true.
A good for which the demand increases as income rises and demand decreases as income falls.
Normal good.
What type of economic analysis is concerened with the way things ought to be?
Normatice Analysis
Analysis concerned with what ought to be.
Normative analysis.
What type of economic analysis is concerned with the way things ought to be?
Normative. Analysis concerned with what ought to be
PPF will be LINEAR if the
OPPORTUNITY COSTS are constant as more of one good is being produced
b
On the backward-bending segment of the labor supply curve, a. substitution effect is larger than the income effect. b. income effect is larger than substitution effect. c. income effect is equal to substitution effect. d. none of the above.
Describe tragedy of the commons.
One person's use of a common resource can impose costs on others
A change in supply is caused by
One of the other factors affecting supply or if the price decreases, shifts to a new supply curve
d
One way in which the government intervenes in the economy is by establishing a regulatory agency or commission that has authority over a particular industry or product. Because the firms that are regulated have an incentive to influence those actions, regulation may lead to... a. logrolling, where regulators will support legislation that increases the power of the agency or commission. b. rational ignorance, where voters do not have an incentive to become informed about how the agency or commission reaches its regulatory decisions. c. the voting paradox. d. regulatory capture
C
Opportunity cost is: A- When unlimited wants exceed the limited resources available to fulfill those wants B- When consumers and firms use all available information as they act to achieve their goals C-The highest valued alternative that must be give up to engage in an activity D- The idea that because of scarcity, producing more of one good or service means producing less of another good or service
The highest-valued alternative that must be given up to engage in an activity.
Opportunity cost.
a
Perfect competition and monopololistic competition are similar because under both market structures, a. there are zero economic profits in the long run b. production takes place at the least cost combination c. there are few firms d. entry is difficult e. differentiated products are produced.
A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Perfectly competitive market.
What point on the PPF graph is unattainable.
Points OUTSIDE the line of the PPF.
What type of economic analysis is concerned with the way things are?
Positive Analysis: Analysis concerned with what is.
Analysis concerned with what is.
Positive analysis.
d
Positive technological change is defined as a. Being able to produce more output using the same inputs b. Being able to produce the same output using fewer inputs c. Being able to sell more output at higher prices d. Both a and b e. none of the above
D
Prepping for a next-day exam over the course of an evening poses increasing costs since: A- tutors charge higher rates past 7pm B- evenings are less productive time to study compared to daylight C- studying productivity declines sharply as the effort extends through the evening D- the longer you choose to study will result in an increase in number and value of foregone activities
A legally determined maximum price that sellers may charge.
Price ceiling.
Why do some consumers tend to favor price control while others oppose them?
Price ceilings generate shortages. Consequently, consumers who obtain the product at a lower price win, but consumers who would like to purchase product but are unable to lose.
Why do some consumers tend to favor price controls while others tend to oppose them?
Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage
c
Price ceilings set below the equilibrium create: a. externalities b. unemployment c. shortages d. surpluses
A legally determined minimum price that sellers may receive.
Price floor.
Suppose that firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. If this is the case in a competitive market, how will the price and output of the chemical products compare with their values under conditions of ideal economic efficiency?
Price is too low; output is too large.
Other Variables that influence market supply:
Prices of Inputs, Technological Change, Prices of Substitutes in Production, Number of Firms, Expected Future Prices
The difference between the lowest price a firm would be willing to accept and the price it actually receives.
Producer surplus.
Markets for goods - such as computers - and services - such as medical treatment.
Product markets.
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Production possibilities frontier (PPF).
The situation in which a good or service is produced at the lowest possible cost.
Productive efficiency.
Factors tht might cause the qty of digital music players supplied at each firm at each price to be different
Productivity differences due to the variations in the use of existing technology.
The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
Property rights.
suppose a price floor on sparkling wine is proposed by the health minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?
Quantity demanded will decrease, quantity supplied will increase and a surplus will result
The amount of a good or service that a consumer is willing and able to purchase at a given price.
Quantity demanded.
The amount of a good or service that a firm is willing and able to supply at a given price.
Quantity supplied.
A
Relative to a market economy, a centrally-planned economy would be expected to be: A) Better at neither productive efficiency nor allocative efficiency B) Better at allocative efficiency but not productive efficiency C) Better at productive efficiency and allocative efficiency D) Better at productive efficiency and allocative efficiency
Centrally planned economies
Result when government decide what to produce, how to produce it, and who received the goods and services (government decides what and how much)
Market economies
Result when the decisions of households & firms determine what is produced, how it is produced, and who receives the goods and services
The study of economics arises due to
Scarcity
Define Scarcity.
Scarcity means that there are not enough resources available to produce and consume all of the goods and services we desire.
The situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Scarcity.
A situation in which the quantity demanded is greater than the quantity supplied.
Shortage.
Goods and services that can be used for the same purpose.
Substitutes.
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to goods that are substitutes.
Substitution effect.
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Supply curve.
A table that shows the relationship between the price of a product and the quantity of the product supplied.
Supply schedule.
c
Suppose a business earned a positive accouting profit, but a negative economic profit, then a. The firm will remain in business as long as its cash flow is sufficient. b. The firm will remain in business and try to earn higher profit c. It will be unlikely for the firm to remain in business in the long run d. The firm will not be affected as long as accounting profit is positive
b
Suppose that a firm in which you have invested is losing a lot of money. Would you rather own the firm's stock or the firm's bonds? a. Stock b. Bonds
No
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 am Monday morning at City Hall. Productive efficiency occurs when a good or service is produced at the lowest possible cost. Is this an efficient way to distribute tickets?
Benefits, Cost
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 am Monday morning at City Hall. The groups of people most likely to get the tickets will be those for whom the expected marginal _____ of going are greater than the expected marginal _____.
D
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 am Monday morning at City Hall. What is the actual cost and opportunity cost of distributing the tickets this way? A- cost of travel to city hall B- The activities that can't be done when standing in line C- The cost of people blocking traffic in and around city hall D- all of the above E- A and B
D
Suppose the equilibrium price and equilibrium quantity of gold both increase. Which of the following would produce such a change? A- the market supply for gold could have increased B- the market supply for gold could have increased or the market demand for gold could have decreased C- the market supply curve for gold could have increased or the market demand curve for gold could have increased D- the market demand curve for gold could have increased E- the market demand curve for gold could have decreased
d
Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following will result? a. Black market b. the quality of existing rental housing deteriorates c. shortages d. all of the above.
D
Suppose the price of a substitute to LCD TV falls. What effect will this have on the market equilibrium for LCD TVS? The equilibrium price of LCD TVS will... A- decrease and the equilibrium quantity will increase B- increase and the equilibrium quantity will decrease C- not change and the equilibrium quantity will not change D- decrease and the equilibrium quantity will decrease E- increase and the equilibrium quantity will increase
A situation in which the quantity supplied is greater than the quantity demanded.
Surplus.
t/f as the price of a good rises, producer surplus increases and as the price of a good falls producer surplus decreases
T
t/f economic analysis cannot provide a final answer to the question of whether the government should interfere in markets by imposing price ceilings and floors because it seeks to address positive questions such as what is
T
It would be difficult for buyers to keep track of their purchases and the amount of tax they owe to the govt on these purchases.
TRUE
c
Tax incidence refers to a. excess burden of the tax. b. deadweight loss from the tax. c. the actual division of the burden of the tax between buyers and sellers in a market. d. none of the above.
The actual division of the burden of a tax between buyers and sellers in a market.
Tax incidence.
A positive or negative change in the ability of a firm to produce a given level of output with a given amount of inputs.
Technological change.
a
The Arrow impossibility theorem states that __________ can be devised so that it will consistently __________ the underlying preferences of voters. a. no system of voting; represent b. any system of voting; not represent c. a specific system of voting; represent d. None of the above is correct.
What are the implications of this idea for the shape of the PPF?
The PPF will bow OUTWARD
Suppose we can divide all the goods produced in an economy into two types: consumption goods and capital goods. Capital goods such as machinery, equipment & computers are goods used to produce other goods. Is it likely the PPF in this situation would be a straight line?
The PPF would likely be bowed out bc NOT ALL resources are equally suited to produce both consumption and capital goods.
B
The US economy enters a period of rapid growth in incomes. this will cause A- demand for MCDs Big Macs to shift to the right if they are inferior goods B- the demand for MCDs Big macs to shift to the left if they are inferior goods C- a movement along the demand curve for MCDs Big Macs if they are normal goods
b
The ability-to-pay principle of taxes is best achieved using a. a regressive tax. b. a progressive tax. c. a poverty tax. d. none of the above.
What is the underlying cause of externalities and other forms of market failure?
The absence of private property rights or the lack of sufficient enforcement of existing property rights
Tax incidence
The actual division of the burden of a tax between buyers and sellers in a market
Marginal benefit
The additional benefit to a consumer from consuming one more unit of a good or service
In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice. According to a deputy commissioner of police, "Commerce does very little of what we recommend. They've told our detectives they have no interest in ever putting in the barriers."
The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers".
What is the midpoint method for calculating price elasticity of demand?
The change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
What variable would cause the supply curve to shift?
The cost of raw materials
Which of the following activities, if any, represents an external cost?
The damage to a person's health from secondhand smoke.
Consumers and firms choosing which goods and services to buy or produce
The decision about what goods and services will be produced made in a market economy is made by...
In June, buyers of titanium expect the price will fall in July. What happens to the titanium market in June, holding everything else constant?
The demand curve shifts to the left
Positive technological change in the production of LCD televisions caused the price to fall. Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions)?
The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would increase
d
The equilibrium price is best defined as the price at which: a. demand is smaller than supply b. suppliers want to supply more goods c. demanders want to buy more goods d. quantity demanded is equal to quantity supplied e. the quantity demanded increases
If demand decreases and supply increases, what will occur?
The equilibrium price will decrease
If demand and supply both increase, what will occur?
The equilibrium quantity will increase
Define Equity.
The fair distribution of economic benefits
c
The federal income tax in the United States is a. a consumption tax. b. a regressive tax. c. a progressive tax. d. none of the above.
b
The financial crisis in the United States that began in 2007 reduced the opportunities for investment bankers, stockbrokers, and other financial workers. Many workers left this industry causing the labor supply curve in this market to a. shift to the right. b. shift to the left. c. stay the same. d. None of the above is true.
c
The first federal antitrust law was the: a. Clayton Act b. Federal Trade Commission Act c. Sherman Antitrust act d. Interstate Commerce ACt
c
The government can block the entry to a market through a. granting a patent or copyright. b. granting a public franchise. c. both (a) and (b). d. none of the above.
e
The horizontal summation of all individual demands at different given prices results in the: a. market supply curve b. individual supply curve c. individual demand curve d. equilibrium demand and supply curves e. market demand curve
The actual division of the burden of a tax between buyers and seller in a market
The incidence is:
e
The key determinants of the price elasticity of demand are: a. Whether a firm has market power and ability to segment the market b. Bargaining power of buyers and baraining power of sellers c. number of firms and ease of entry and exit d. government regulations, control of key resource necessary for production and economies of scale e. Availability of close substitutes, passage of time, necessities vs luxuries, definition of the market and share of the good in consumer's budget.
c
The kinked demand theory attempts to explain why an ologopolistic firm: a. has relatively large advertising expenditures b. fails to invest in research and development c. infrequently changes its price d. engages in excessive brand proliferation
a
The monopolist produces an output that is _________ the perfectly competitive industry would produce and charges a price that is ________ the perfectly competitive industry a. less than; higher than b. more than; less than c. same as; same as d. None of the above is true.
b
The more cell phones in use, the more valuable they become to consumers. This is an example of a. what happens when a firm is granted a patent. b. network externalities. c. what happens when a firm has control of a key resource. d. natural monopoly.
d
The port authority of new york increased the tolls on the bridges and tunnels crossing the hudson river by $0.50, the port authority expects to raise $720 million additional for the Agency. The port authority believes that demand for using the bridges and tunnels is a. perfectly elastic b. perfectly inelastic c. unit elastic d. inelastic e. elastic
A
The price of BK's Whopper hamburger declines. This will cause A- demand for MCD's Big Mac to decrease B- demand for MCD's Big Mac to increase C- a movement along the demand curve for MCD's Big Macs
a
The price of a financial asset should be equal to the ____ of the payments to be received from owning that asset. a. Present value b. Future value c. Sum of d. none
a
The price of fries increases due to a potato shortage. This will A- decrease demand for MCDs Big Macs B- increase demand for MCDs Big Macs C- cause a movement along the demand curve for MCD's Big Macs
e
The private cost of producing a good will differ from the social cost when a. There is an externality such as acid rain generation by the production of electricity b. There is an externality such as lower crime rates generated by consumption of education c. There are property rights, where individuals have exclusive use of their property d. There is no externality, such as the consumption of ice cream e. Both a and b.
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward
Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of 50. What impact would this law have on the nations production possibilities frontier.
The production possibilities frontier would shift inward
A products equilibrium price
The products demand curve crosses the products supply curve
c
The public choice model a. applies economic analysis to government decision making. b. assumes that policymakers are likely to pursue their own self-interest even if it contradicts with the public interest. c. both (a) and b d. none of the above
Farmers can plant either corn or soybeans in their fields. Suppose that a new technology for converting corn into liquid fuel increases the demand for corn. Which of the following is more likely to occur?
The quantity supplied of corn increase and the supply of soybeans will decrease
Suppose the president is considering whether the fed govt should spend more to find a cure for heart disease. What is the OPPORTUNITY COST of spending more money to find a cure?
The reduction in funding for research to cure OTHER diseases, since the opportunity cost is a the trade for the highest valued alternative that must be given up to engage in that activity.
Law of supply
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied -- There is a positive relationship between price and quantity supplied, and as the price of a product increases, firms will supply more of it to the market
c
The situation in which the marginal product of labor is greater than zero and declining as more labor is hired is called the law of: a. negative returns to scale b. inverse returns to labor c. diminishing returns d. demand
Why isn't the elasticity just measured by the slope of the demand curve?
The slope can change dramatically, depending on the units chosen for quantity and price
Briefly explain whether you agree or disagree with the following statement: "If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good."
The statement is correct because every good (except undesirable things) is scarce
Physical capital
The stock of computers, factory buildings, and machine tools used to produce goods better
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?
The supply curve for cases of beer shifts up by $1
c
The theory that states that the outcome of the majority vote is likely to represent the preferences of the voter who is in the political middle is called a. the public choice theorem. b. the Arrow impossibility theorem. c. the median voter theorem. d. none of the above.
a
The three major types of firms in the US are called a. Sole Proprietorships, Partnerships, and Corporations b. Non-profit corporations, government agencies, and limited liability firms. c. small business, medium business, and large corporations d. Mom and pops, government agencies, and big business.
c
The total fixed cost remains constant as which of the following varies? a. cost of resources b. time c. output in a given period of time d. profit
If automakers reduce the price of SUV's to attract more customers, how will that affect the demand curve for SUV's?
There will be a movement downward along the demand curve.
in this statement ..When a market is in equilibrium there is no consumer surplus, we know this bc in equilibirum, the market price is equal to the price the consumer is willing to pay. Correct or Incorrect?
This is incorrect bc the $ the consumers are willing to pay and the market price are only equal for the last unit consumed.
In one week, Mohammed can knit 5 sweaters or bake 240 cookies. In one week, Thomas can knit 15 sweaters or bake 480 cookies. Mohammed and Thomas would produce the maximum quantities of cookies and sweaters if a. Mohammed knitted and baked and Thomas did nothing b. Thomas knitted and baked and Mohammed did nothing c. Mohammed knitted and Thomas baked d. Thomas knitted and Mohammed baked e. Mohammed knitted and baked and Thomas just knitted
Thomas knitted and Mohammed baked
What is NOT scarce according to the definition
Time, food, oil, capital ALL ABOVE
Why do Economist use models?
To answer questions and analyze issues.
c
To maximize profit, firms hire workers up to the point where a. MPL=W. b. MR=W. c. MRPL = W. d. None of the above is true.
How is Economic Data Used?
To test models.
The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
Trade-off.
b
Travel by bus and pawn-shop services would be expected to be examples of a. normal goods b. inferior goods c. substitute d. complementary goods
A disadvantage of the corporate form of business organization is that corporate income is taxed twice. a. True b. False
True
Gasoline taxes illustrate the benefits-received principle of taxation. a. True b. False
True
Which of the following is a normative statement?
Tuition fees should be waived for low income students
A free market differs from a centrally planned economy in that
Unlike a free market economy, CPE have extensive governement controls
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
Rational
Using all available information to achieve your goals
The situation that occurs when both the buyer and the seller of a product are made better off by the transaction.
Voluntary exchange.
It is more likely and tenant will be black listed in a cty with rent control or without rent control?
WITH rent control bc their will be a shortage of apts.
C
What do economists mean by market equilibrium? A- a condition where a good is no longer scarce B- a condition where a good is abundantly available C- a market outcome where quantity supplied is equal to quantity demanded
c
What does the term cognitive dissonance refer to? a. the tendency for workers to ignore the going wage rate in a labor market b. a distortion to the free labor market created by compensating differentials c. the tendency for workers to underestimate the true risks of their jobs d. the willingness of some workers to accept low wages for jobs involving low risk
a
What does the term collusion refer to? a. Collusion refers to an agreement among firms to charge the same price or otherwise not to compete. b. Collusion refers to an agreement among existing firms to prevent potential competitors from entering an industry. c. Collusion refers to laws aimed at promoting competition among firms. d. Collusion refers to a price war among competing firms.
a
What is a merger between firms in the same industry called? a. a horizontal merger b. a vertical merger c. a conglomerate d. a divestiture
D
What is absolute advantage? A- the ability to produce a good or service at a lower opportunity cost than other producers B- the ability to use all available resources to produce output C- the gain from consuming a product whose benefit is greater than its cost D- the ability to produce more of a good or service than competitors using the same amount of resources E- the gain from selling a product for more than its costs to produce the product
A
What is comparative advantage? A- the ability to produce a good or service at a lower opportunity cost than other producers B- the ability to use all available resources to produce output C- the gain from consuming a product whose benefit is greater than its cost D- the ability to produce more of a good or service than competitors using the same amount of resources E- the gain from selling a product for more than its costs to produce the product
c
What is the advantage of the midpoint method for calculating elasticity? a. The midpoint formula is easier to calculate b. The midpoint formula will give the same value as the price elasticity of demand when using the final price and the final quantity c. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price d. The midpoint formula will give the same value as the price elasticity of demand when using the lower price and lower quantity.
a
What is the formula for the price elasticity of demand? a. The percentage change in quantity demanded divided by the percentage change in price b. The percentage change in quantity demanded divided by the price c. the percentage change in quantity supplied divided by the percentage change in quantity demanded d. the percentage change in price divided by the percentage change in quantity demanded e. the change in price divided by the change in quantity demanded.
c
What is the value of the Herfindahl-Hirschman Index (HHI) when there are four firms in an industry with each firm having an equal market share? a. 4 b. 625 c. 2,500 d. 4,000
a
When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called: a. mutual interdependence b. price leadership c. collusion d. monopolistic competition
D
When economists speak of a surplus, they mean a situation in which.. A- the market price is above the equilibrium price B- the quantity supplied exceeds quantity demanded C- firms have unsold goods piling up D- all of the above E- A and B only
Which of the following statements is most consistent with the rule of rational choice
When evaluating new prescription drugs, the FDA should weigh each drugs potential health benefits against the potential health risks posed by known side effects
Some people win, some people lose, and there is a loss of economic efficiency.
When the government imposes price floors or price ceilings: (1) Everyone wins, good and services distribution is more just, and there is an increase in economic efficiency. (2) Some people win, some people lose, and there is an increase in economic efficiency. (3) Some people win, some people lose, and there is a loss of economic efficiency.
b
When the price of a good is above its equilibrium price, a: a. surplus puts upward pressure on the price b. surplus puts downward pressure on the price c. shortage puts upward pressure on the price d. shortage puts downward pressure on the price
b
Which barrier to entry results in the creation of a natural monopoly? a. Legal barriers like government franchises b. Economies of scale c. Ownership of a vital resource d. Patents and copyrights
a
Which of the factors listed below does not cause the demand curve for labor to shift? a. a change in the wage b. a change in human capital c. a change in technology d. a change in the price of the product
d
Which of the following are effects of monopoly? a. Monopoly causes a reduction in consumer surplus. b. Monopoly causes an increase in producer surplus. c. Monopoly causes a reduction in economic efficiency. d. All of the above are effects of monopoly.
c
Which of the following corresponds to the definition of the supply curve? a. It depicts a positive relationship between income and quantity supplied b. It depicts a positive relationship between technology and prices c. it depicts a positive relationship between prices and quantity supplied d. it depicts a negative relationship between prices and quantity e. it depicts a proportional relationship between prices and quantity supplied.
d
Which of the following groups pays the most in federal taxes? a. the lowest 20 percent of income earners b. the third highest 20 percent of income earners c. the fourth highest 20 percent of income earners d. the top 20 percent of income earners
d
Which of the following is a factor of production? a. labor b. natural resources c. capital d. all of the above
c
Which of the following is a necessary condition for price discrimination? a. the seller must be able to divide the market according to the different price elasticities of demand b. it must be difficult for one buyer to resell to another buyer c. both d. neither
b
Which of the following is a textbook argument about employer discrimination of workers? a. Employers who discriminate pay an economic penalty because very few workers are willing to work for a discriminating employer. b. Employers who discriminate pay an economic penalty imposed by the market system and by competition. c. Employers who discriminate receive an economic reward by keeping only the most productive workers. d. Employers who discriminate are rewarded by authorities who usually ignore their criminal behavior.
b
Which of the following is the average tax rate? a. the fraction of each additional dollar of income that must be paid in taxes b. the total tax paid divided by total income c. the income range within which a tax rate applies d. the tax rate paid by the average taxpayer
c
Which of the following is true for a pure monopolist? a. The firm has a perfectly elastic demand curve b. The firm will always earn an economic profit c. The demand curve is above the marginal revenue curve d. None of the above
a
Which of the following laws outlawed monopolization? a. the Sherman Act b. theClaytonAct c. the Robinson-Patman Act d. the Cellar-Kefauver Act
b
Which of the following mergers would result from the purchase of a computer chip company by IBM? a. A horizontal merger b. A vertical merger c. A conglomerate merger d. An interlocking merger
b
Which of the following terms is associated with raising more taxes from people with high incomes than from people with low incomes? a. horizontal equity b. vertical equity c. benefits received principle d. tax incidence
b
Which of the following will not shift the demand curve for grapefruit? a. An announcement that eating a grapefruit before every meal will induce weight loss. b. A technical development that allows machines to replace the workers who harvest grapefruit c. An announcement that eating lots of grapefruit causes skin problems d. A newspaper story reporting that the preference for oranges has skyrocketed e. An announcement that grapefruit will definitely cost more next week
c
Which of the statements below best describes the premise of the marginal productivity theory of income distribution? a. Workers become productive and receive income only at the margin. b. Income is distributed in such a way as to encourage workers to increase their productivity. c. The distribution of income is determined by the marginal productivity of the factors of production that individuals own. d. Income and productivity necessarily increase with additional hours spent at work.
Differences in income are most directly related to which of the following economic questions
Who consumes the goods and services that are produced?
Every society faces economic tradeoffs. This means
Who will receive the goods and services produced?
b
Why do most economists favor tradeable emissions allowances to the command-and-control approach to pollution? a. Tradeable emissions allowances eliminate more pollution than the command and control approach b. Tradeable emissions allowances eliminate pollution at a lower cost than the command and control approach c. Tradeable emissions allowance genreate more government revenue d. Both a and c
If the competitive equilibrium rent in the city is currently 1000/mo the govt decided to enact rent control and establish price ceiling for apts $750/ mo. Will rent control make people better off or worse?
Will be better off bc their rent is lower but worse off if they lose their apt. Someone who intend to move to Lowell next year and rent an apt? Better off bc rent is lower and worse off if they cnt find an apt. A landlord who intends to abide by the rent control? Worse off bc rent is lower due to ceiling. A landlord who ignores the Price ceiling law? will be better off bc its above the equilibrium nd worse off if he gets caught.
The sugar quota in the US creates winners and losers. Who are they?
Winners= US sugar producers Losers=US sugar consumers
C
With respect to the demand for iphones, the increase in availability of apps for android phones would be expected to: A- have an indeterminate effect because many things other than the availability of apps for androids are changing b- increase demand for iphones because android phones will now be more expensive to operate c- reduce the demand for iphones because enhancements as apps to androids increase their relative appeal d- have no impact because these smartphones use different operating systems
If an increase in the price of good X causes an increase in demand for good Y, we can conclude that
X and Y are substitutes
Suppose you win free tickets to a movie Plus all you can eat at the snack bar for free. Would there be a cost for you to attend the movie
Yes, bc the movies opportunity cost is equal to the highest valued alternative to be given up for the movie.
Is there a cost to attend a free movie showing?
Yes, because the movie's opportunity cost is equal to the highest-valued alternative that must be given up to attend the movie.
Does Bill Gates, the richest person in the world, face scarcity?
Yes.
b
You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct? a. Mary is correct if the demand for the tickets is price inelastic b. Mary is incorrect if the demand for the tickets is price inelastic c. Mary is correct. The increase in prices will always increase revenue d. Mary is incorrect. The increase in ticket prices will never increase revenue. e. Mary is incorrect. The way to increase revenue is to decrease ticket prices.
You have responsibility for economic policy in the country of Freedonia. Recently the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?
Zeppo
- Producer - B
_______ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the right by area ____.
- Consumer -A
_________ surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram to the right by area ___.
Economists classify all of the following as capital, except one. Which one is not capital? a. a $20 bill in a firm's petty cash drawer b. the building where our economics class meets c. a plumber's wrench d. a railroad car e. a factory
a $20 bill in a firm's petty cash drawer
positive analysis
a 50 cent per pack tax on cig will reduce smoking by teens by 12 percent
What is an externality?
a benefit or cost that affects someone not directly involved in the production or consumption of a good or service
what is an eternality?
a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
7. What is the difference between a binding and non-binding price floor and price ceiling?
a binding price floor occurs ABOVE equilibrium price and a binding price ceiling occurs BELOW equilibrium price
What is a private cost?
a cost borne by the producer of a good or service
How can a country gain from specialization and trade?
a country can specialize in producing thst for which it has a comparative advantage and then trade for other needed goods and services.
production possibilities frontier (PPF)
a curve showing the max attainable combinations of two products that may be produced with available resources and current technology
PPF
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
Production possibilities frontier
a curve showing the maximum attainable combinations of two products that may be purchased with available resources and current technology
Supply curve
a curve that shows the relationship between the price of a product and the quantity of the product supplied
Demand curve
a curve that shows the relationship between the price of the product and the quantity of the product demanded
If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:
a decrease in production.
if in response to the price of choc increasing the qty demanded of choc decreases this is
a decrease in qty demanded.
If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
a decrease in quantity demanded.
Holding everything else constant, an increase in the $ of MP3 players..
a decrease in the QTY demanded
The market for chewing gum is competitive with a current price of 50 cents per pack and quantity of 100,000 packs. Which of the following events would lead to a new equilibrium price of 40 cents and quantity of 80,000 packs? a. an increase in the price of other kinds of candy b. an increase in the price of the ingredients used to make chewing gum c. a decrease in the number of young people in the population d. an agreement by workers in the chewing gum industry to work for lower wages e. an improvement in chewing gum production technology
a decrease in the number of young people in the population
what will shift the demand curve for a good
a decrease in the price of a complementary good.
Which of the following will increase the supply of vanilla ice cream? a. an increase in the price of vanilla beans (an ingredient in ice cream) b. a decrease in the sales tax on restaurant bills c. an increase in the price of chocolate ice cream d. a decrease in the price of milk (an ingredient in ice cream) e. an increase in the price of hot fudge
a decrease in the price of milk (an ingredient in ice cream)
A surplus of shoes will cause a. a decrease in the supply of shoes b. a decrease in the demand for shoes c. both a decrease in the supply of shoes and an increase in the demand for shoes d. a decrease in the price of shoes, through a shift of either the supply curve or the demand curve e. a decrease in the price of shoes
a decrease in the price of shoes
economies of scale
a firms long run average costs fall as it increases the quantity of output it produces
Productive efficiency means that..
a good or service is produced at the lowest cost
productive efficiency
a good or service is produced at the lowest possible cost
productive efficiency means that...
a good or service is produced at the lowest possible cost
What is a public good?
a good that is both nonrivalrous and nonexcludable
What is a private good?
a good that is both rival and excludable
What is a common resource?
a good that is rival but not excludable
Which of the following is an example of a durable good? a. a cowboy b. a cherry pie c. a newspaper d. a hand-held calculator e. a pencil
a hand-held calculator
An example of a positive externality is a. pollution because it affects people not directly involved with producing it b. a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors c. creating a monopoly d. driving a car that emits pollution e. cigarette smoking because this imposes an indirect cost on people around the smoker
a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors
Which of the following would most likely include a positive externality?
a hybrid automobile
In attempting to compare health care outcomes across countries, a problem encountered is
a lack of data consistency, distinguished health care effectiveness from lifestyle choices, getting an accurate measurment of health care delivery, properly assessing consumer prefrences
price ceiling
a legally determined maximum price that sellers may charge
Price Floor
a legally determined minimum price that sellers may receive
a price ceiling is
a market determined price
product market
a market for goods and services, households are demanders and firms are suppliers
factor market
a market for the factor of production (labor, capital, natural resources, entrepreneur)
A black market is
a market in which buyers and selling occur at prices that violate government price regulations.
A black market is
a market in which buying and selling occur at prices that violate government price regulations
A black market is
a market in which buying and selling occur at prices that violate govt price regualtions.
Black market
a market in which buying and selling take place at prices that violate government price regulations
Economic Efificiency is
a market outcoe where the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production AND which the sum of consumer surplus and producer surplus is at a maximum.
economic surplus
a market outcome in which marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, sum of consumer surplus and producer surplus is at a maximum
economic efficiency
a market outcome in which the MB to consumers of the last unit produced is equal to its marginal cost of production and is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum
Economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
Perfectly competitive market
a market that meets the conditions of 1) many buyers and sellers 2) all firms selling identical products and 3) no barriers to new firms entering the market
If an increase in income leads to an increase of the demand for pnutbutter then pnut butter is
a normal good.
Which term refers to a legally established maximum price that sellers may charge?
a price ceiling
Government officials are likely to try to achieve this goal using pricing regulations by establishing
a price floor for milk
Govt officials are likely to try and achieve this goal using price regulations by establishing
a price floor for milk.
To internalize a negative externality:
a producer's costs could be increased by an amount equal to the external cost resulting from the produc-tion of a good.
if a firm is productively and allocatively effcient, it earns _____: if it is not its ________
a profit Suffers a loss
black market may arise
a reaction in binding price floors.
Demand schedule
a table that shows the relationship between the price of a product and the quantity of the product demanded
Supply schedule
a table that shows the relationship between the prices of a produce and the quantity of the product supplied
pigovian tax
a tax to bring about efficient level of output in the presence of externalities
What is a normal good? a. A good for which demand increases as income rises. b. A good for which demand decreases as income rises. c. A good that can be used together with another good. d. A good that does serves more than one purpose.
a. A good for which demand increases as income rises
What type of statement would "A minimum wage actually reduces employment" be considered? a. A positive statement b. A marginal statement c. A normative statement d. An irrational conclusion
a. A positive statement
What is the name of a legally determined maximum price that sellers may charge? a. A price ceiling b. A price floor c. Marginal benefit d. Consumer surplus
a. A price ceiling
14. What type of solution to externalities is the Coase Theorem? a. A private solution to externalities b. A public solution to externalities c. The only solution to externalities d. The least preferred solution
a. A private solution to externalities
3. What is the difference between private benefit and social benefit? a. An external benefit b. Private cost c. Social cost d. A negative externality
a. An external benefit
Which of the following is consistent with the law of supply? a. An increase in price causes an increase in the quantity supplied, and a decrease in price causes decrease in the quantity supplied. b. A change in price causes a shift of the supply curve. c. Supply shifts are caused not by a single variable but most likely by a number of different variables. d. All of the above
a. An increase in price causes an increase in the quantity supplied, and a decrease in price causes decrease in the quantity supplied.
What is the name given to the development of a new good or a new process for making a good? a. An invention b. An innovation c. Entrepreneurship d. Capital
a. An invention
15. Which of the following statements is correct according to Ronald Coase's argument for dealing with externalities and market failure? a. In some situations, a private solution to the problem of externalities can be found. b. Only public solutions exist for solving externalities. c. Completely eliminating an externality is almost always the most efficient solution. d. The only cure to externalities is taxation.
a. In some situations, a private solution to the problem of externalities can be found
What is the outcome of enforcing contracts and property rights in a market system? a. Increased economic activity b. Decreased economic activity c. No change or no effect on economic activity d. An unpredictable but definite effect on economic activity
a. Increased economic activity
Fill in the blank: ____________ is the study of how households and businesses make choices. a. Microeconomics b. Macroeconomics c. A market mechanism d. Marginal analysis
a. Microeconomics
What is the stock of computers, factory buildings, and machine tools used to produce goods better known as? a. Physical capital b. Technology c. Innovation d. Goods and services
a. Physical capital
Which of the following involves an estimation of the benefits and costs of a particular action? a. Positive economics b. Normative economics c. The market mechanism d. An irrational conclusion
a. Positive economics
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity? a. Price b. Government regulation c. Financial markets d. Cost
a. Price
4. What is the benefit received by the consumer of a good or service called? a. Private benefit b. Social benefit c. Private cost d. A positive externality
a. Private benefit
Which of the following refers to markets where goods such as computers or services such as medical treatment are offered? a. Product markets b. Essential markets c. Factor markets d. Competitive markets
a. Product markets
What does an economy achieve by producing a good or service at the least possible cost? a. Productive efficiency b. Allocative efficiency c. Voluntary exchange d. Equity
a. Productive efficiency
Which of the following is the definition of marginal benefit? a. The additional benefit to a consumer from consuming one more unit of a good or service. b. The additional cost to a firm of producing one more unit of a good or service. c. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. d. The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
a. The additional benefit to a consumer from consuming one more unit of a good or service.
What happens if a country produces a combination of goods that uses all of the resources available in the economy? a. The country is operating on its production possibilities frontier. b. The country is maximizing its opportunity cost. c. The country has eliminated scarcity. d. All of the above
a. The country is operating on its production possibilities frontier.
What does the term quantity supplied refer to? a. The quantity of a good or service that a firm is willing and able to supply at a given price. b. A table that shows the relationship between the price of a product and the quantity of the product supplied. c. A curve that shows the relationship between the price of a product and the quantity of the product demanded. d. None of the above
a. The quantity of a good or service that a firm is willing and able to supply at a given price.
When two goods are substitutes, which of the following occurs? a. The two goods can be used for the same purpose. b. The two goods are used together. c. The demand for each of these goods increases when income rises. d. The demand for each of these goods increases as income falls.
a. The two goods can be used for the same purpose
Which of the following is critical for the success of a market system? a. To allow individuals or firms to have exclusive use of their property. b. To prevent individuals from buying or selling their property depending on the circumstances. c. Either choice above. d. To allow the government to determine the optimal use of private property.
a. To allow individuals or firms to have exclusive use of their property.
When is output inefficiently low? a. When marginal benefit is greater than marginal cost. b. When marginal cost is greater than marginal benefit. c. When marginal cost is equal to marginal benefit. d. Any of the above; output can be inefficiently low at any time.
a. When marginal benefit is greater than marginal cost.
If a shortage exists in a market we know that the actual price is a. below equilibrium price and quantity demanded is greater than quantity supplied. b. above equilibrium price and quantity demanded is greater than quantity supplied. c. above equilibrium price and quantity supplied is greater than quantity demanded. d. below equilibrium price and quantity supplied is greater than quantity demanded.
a. below equilibrium price and quantity demanded is greater than quantity supplied.
Which of the following would definitely result in a higher price in the market for tennis shoes? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase
a. demand increases and supply decreases
Absolute advantage is the ability of an individual, firm, or country to a. produce more of a good or service than competitors using the same amount of resources. b. produce a good or service at a lower opportunity cost than other producers. c. consume more goods or services than others at lower costs. d. reach a higher production possibilities frontier by lowering opportunity costs.
a. produce more of a good or service than competitors using the same amount of resources.
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity. a. smaller b. greater c. proportional d. more instant
a. smaller
A production possibilities frontier will be linear instead of bowed out if a. the tradeoff between the two goods is always constant. b. no tradeoffs exist. c. unemployment is zero. d. resources are employed efficiently.
a. the tradeoff between the two goods is always constant.
10. Fill in the blanks. When a negative externality is present in producing a good or service, ___________ of the good or service will be produced at market equilibrium. a. too much b. too little c. the optimal quantity d. none
a. too much
absolute advantage
ability of an individual, firm, or a country to produce more of a good or service than competitors, using the same amount of resources
economic growth
ability of the economy to increase the production of goods and services
comparative advantage
ability to produce a good or service at a lower opportunity cost
comparative advantage
ability to produce a good or service at a lower opportunity cost than other producers
absolute advantage
ability to produce more of a good or service than competitors using the same amount of resources
If a country has an
absolute advantage in producing a good, it might or might not have a comparative advantage in producing that good
primary difference between absolute and comparative advantage
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost
tax incidence indicates
actual division of the burden of a tax
marginal benefit
additional benefit from consuming one more unit
marginal benefit
additional benefit to a consumer from consuming one more unit of a good or service
marginal cost
additional cost to a firm of producing one more unit of a good or service
When the government taxes a good or service, it
affects the market equilibrium for that good or service
ceteris paribus
all else equal
what do economists mean when they use the latin expression CERTERIS PARIBUS?
all else equal
Scarcity a. exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants b. applies when a resource is not freely available c. means that each society and each individual must make choices d. exists in all societies e. all of the above are true
all of the above are true
Suppose a product produces substantial spillover costs. If the government adopts a policy that forces producers to bear those costs:
all of the above will be true.
In Market Economies...
allocates goods and services according to prices, which are determined by supply and demand (or households and firms)
When resources are allocated to their highest valued use _____ is achieved and when goods are produced at the lowest possible cost ______ is achieved
allocative efficiency, productive efficiency
When the marginal benefit equals the marginal cost of the last unit sold in a competitive market
an economically efficient level of output is produced.
which of the following statements is correct?
an innovation is the practical application of an invention
Medical research helps to develop better treatments for neuromuscular disease. Medical researchers are constantly in search of funds. Many in the public, however, are unwilling to contribute money toward neuromus-cular disease research until a member of their own family suffers from a neuromuscular ailment. If left strictly to the private market, it is likely that there will be:
an underallocation of resources to neuromuscular disease research, relative to the efficient level.
Economists use models to..
answer questions and analyze issues
The phrase "health care outcome" refers to
any indicator of societal health
Economists assume that individuals
are rational and respond to incentives
Total surplus
area below demand curve, above supply curve up to the quantity sold
The law of demand
as price decreases the quantity demand of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease -There is a inverse relationship between price and quantity demanded
how does consumer surplus change as the equilibrium price of a good rises or falls
as the price of a good rises, consumer surplus decreases, and as the price of a good falls, consumer surplus increases
how does producer surplus change as the equilibrium price of a good rises or falls
as the price of a good rises, producer surplus increases and as the price of a good falls, producer surplus decreases
law of demand implies, keeping everything else a constant
as the price of bagels increase, the QTY of bagels demanded will decrease.
The law of demand implies, holding everything else constant, that
as the price of bagels increases, the quantity of bagels demanded will decrease.
increasing marginal opportunity cost
as we produce one thing we must give up producing more of another
Which of the following statements is correct for the price elasticity of demand along a linear, downward sloping demand curve?
at high prices, demand is elastic but at low prices demand is inelastic
Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
at least $60,000
7. What is the defining characteristic of a perfectly elastic demand curve and what is the elasticity coefficient?
availability of close substitutes
If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber? a. $208 + $81 b. $208 - $81 c. $81 + $127 d. $81
b. $208 - $81
Which of the following would NOT shift the demand curve for a good or service? a. A change in the price of a related good b. A change in the price of the good or service c. A change in expectations about the price of the good or service d. A change in income
b. A change in the price of the good or service
What is an inferior good? a. A good for which demand increases as income rises. b. A good for which demand decreases as income rises. c. A good that cannot be used together with another good. d. A good that does not serve any real purpose.
b. A good for which demand decreases as income rises.
When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of? a. Marginal analysis b. A market c. Scarcity d. Rational behavior
b. A market
What type of assessment is one where a person's values and political views form part of that assessment? a. A positive assessment b. A normative assessment c. A microeconomic assessment d. A macroeconomic assessment
b. A normative assessment
What is the name of a legally determined minimum price that sellers may receive? a. A price ceiling b. A price floor c. Marginal benefit d. Consumer surplus
b. A price floor
Which of the following is the correct definition of demand schedule? a. The quantity of a good or service that a consumer is willing to purchase at a given price. b. A table showing the relationship between the price of a product and the quantity of the product demanded. c. A curve that shows the relationship between the price of a product and the quantity of the product demanded. d. The demand for a product by all the consumers in a given geographical area.
b. A table showing the relationship between the price of a product and the quantity of the product demanded.
Which of the following is the textbook's definition of supply schedule? a. The quantity of a good or service that a firm is willing to supply at a given price. b. A table that shows the relationship between the price of a product and the quantity of the product supplied. c. A curve that shows the relationship between the price of a product and the quantity of the product demanded. d. None of the above
b. A table that shows the relationship between the price of a product and the quantity of the product supplied.
Which of the following is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it? a. Productive efficiency b. Allocative efficiency c. Equality d. Equity
b. Allocative efficiency
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights? a. Powerful political connections b. An independent court system c. Action by government to prevent the exercise of certain property rights
b. An independent court system
What is the name given to the practical application of an invention? a. A model b. An innovation c. Voluntary exchange d. Capital
b. An innovation
What does the sum of consumer surplus and producer surplus equal? a. Economic efficiency b. Economic surplus c. A deadweight loss d. Competitive equilibrium
b. Economic surplus
In a free market system, which of the following groups brings together the factors of production— labor, capital, and natural resources—in order to produce goods and services? a. The government b. Entrepreneurs c. Lobbyists d. Politicians
b. Entrepreneurs
Which of the following covers the study of topics such as inflation or unemployment? a. Microeconomics b. Macroeconomics c. Both microeconomics and macroeconomics give equal emphasis to these problems. d. None of the above
b. Macroeconomics
11. What is the situation called in which the market fails to produce the efficient level of output? a. An externality b. Market failure c. External disequilibrium d. The Coase Theorem
b. Market failure
Which of the following is the best classification for the economies of the United States, Canada, Japan, and Western Europe? a. Market economies b. Mixed economies c. Centrally planned economies d. None of the above
b. Mixed economies
2. What is the term used to describe the total cost of producing a good? a. Private cost b. Social cost c. Externality d. All of the above fit that definition.
b. Social cost
According to textbook section 2.2 on trade, which of the following statements is most consistent with positive economic analysis? a. The United States would be better off being self-sufficient, so we don't have to rely on other nations for certain goods. b. The United States would be better off if we specialize in the production of some goods, and then trade some of them to other countries. c. We should produce at home the goods that we now import—that way we can generate additional jobs here at home. d. We should establish trade with friendly countries and avoid trade with our enemies.
b. The United States would be better off if we specialize in the production of some goods, and then trade some of them to other countries.
Precisely what does consumer surplus measure? a. The total benefit to consumers from participating in the market b. The net benefit to consumers from participating in the market c. The marginal cost of consumption d. The efficiency of competitive markets
b. The net benefit to consumers from participating in the market
Precisely what does producer surplus measure? a. The total benefit to producers from participating in the market b. The net benefit to producers from participating in the market c. The marginal cost of production d. The efficiency of competitive markets
b. The net benefit to producers from participating in the market
12. When we talk about property rights in the discussion of externalities, which rights do we refer to? a. The rights of individuals to pollute b. The rights of individuals to have exclusive use of their property c. The rights of individuals to buy but not sell their property d. All of the above
b. The rights of individuals to have exclusive use of their property
Which of the following best describes how consumers consider buying other goods when the price of a good rises? a. The law of demand b. The substitution effect c. The income effect d. The term ceteris paribus
b. The substitution effect
When two goods are complements, which of the following occurs? a. The two goods can be used for the same purpose. b. The two goods are used together. c. The demand for each of these goods increases when income rises. d. The demand for each of these goods increases as income falls.
b. The two goods are used together.
Which of the following statements is correct? a. There is a shortage of every good that is scarce. b. There is no shortage of most scarce goods c. Scarcity and shortage mean pretty much the same thing to economists. d. None of the above statements are correct.
b. There is no shortage of most scarce goods
What is the purpose of an economic hypothesis? a. To establish a behavioral assumption b. To establish a causal relationship c. To make a statement based on fact d. To determine the validity of statistical analyses used in testing a model
b. To establish a causal relationship
Generally speaking, for a market system to work, individuals must a. be very cautious in their approach to saving and investment. b. take risks and act in rational, self-interested ways. c. be able to evaluate and understand all available options. d. consult people who have experience.
b. take risks and act in rational, self-interested ways.
17. The net benefit to society from reducing pollution is equal to a. the sum of the benefits of reducing pollution and the costs. b. the difference between the benefits and the costs. c. the additional benefit plus the additional costs. d. the quantity of pollution, such as the tons of reduction in sulfur dioxide.
b. the difference between the benefits and the costs.
FBI research shows that by installing bandit barriers that the crime of brank ropping will decrease, but the bank doesn't want to install them,why is this?
bank has no economic incentive to install the barriers
Why is the point ON the PPF line likely to be the highest growth rate
bc it is where the most resources are used to produce capital goods.
An example of a positive externality is:
beautiful trees on property along a parkway.
Why might studying economics be a particularly good preparation for being the top manager of a corporation or a leader in governemnt?
because economics how to look at trade offs in everyday decisions
why are models based on assumptions?
because models have to be simplified to be useful
relative to market economy, a centrally planned economy would be expected to be....
better at neither productive efficiency or allocative efficiency because the absence of marker imposed competition negates the need of firms to satisfy consumer want or produce using lower coast methods
Compared with those of other high income countries, health care outcomes in the US are
better on some indicators, inferior on others
8. What happens to quantity demanded, quantity supplied, quantity exchanged when there is a binding price floor or price ceiling in the market?
binding price floor: -quantity demanded decreases -
If Don paints the outside of his house a horrendous color:
both b. and d. are true.
The demand curve for pizza is downwards sloping and the supply curve is upwards sloping. If the gov't imposes a $2 tax on pizza ______ the tax
both producers and consumers pay
Market price is determined by
both supply and demand
Market price is determined by
both supply and demand.
Entrepreneurs play a key role in the market system by
bringing together factors of production
Inferior good
buy less when your incomes goes up ex: ramen noodles
Normal good
buy more when our incomes goes up ex: a nice steak
Demand for a product tends to be more elastic the longer the time period considered because
buyers have more time to search for substitutes
In the market for health insurance, asymmetric information problems arise because
buyers of health insurance policies always know more about the state of their health than do the insurance companies
The law of demand says that as the price of a good rises, a. buyers recognize that price may be even higher in the future, and so they buy now b. buyers purchase less in hopes that the price will fall in the future c. buyers purchase less, in part because their real income has fallen d. buyers purchase more, in part because the price of a substitute has risen e. buyers purchase more, in part because it has higher status at a higher price
buyers purchase less, in part because their real income has fallen
externalities affect the economic efficiency of a market equilibrium...
by causing a difference between the private cost of production and social cost of production and the private benefit of consumption and the social benefit of production
"grading infuses everything that happens in the class room" they also argue that grading "needs to be acknowledge and managed for the first moment that an instructor begins planning the class" The grading system used by a teach can be affected the inactive of students to learn the course material by...
altering the payoffs to achieving success on the various components of the course
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
Suppose Apple is currently selling 2,000,000 iPods per year. However, managers at Apple are considering whether to increase production by 200,000 iPods. One manager explains that after increasing production by this amount total profit would be $100 million. Given this information, should Apple increase it's production by 200,000 iPods?
Information about the additional revenue earned the additional cost incurred from producing 200,000 additional iPods is required to answer this question.
The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course.
Do you agree with Baum that the economic system in Oz wouldn't work in the contemporary United States?
The system in Oz wouldn't work. The wants of the people in the United States exceed the resources available to fulfill those wants.
when does allocative efficiency occur?
allocative efficiency occurs when production is in accordance with consumer preferences
economists use models to....
anser questions and analyze issues
the public choice model...
applies economic analysis to government decision making
With respect to consumption, individuals and countries
can, through trade, consume beyond their production possibilities frontiers.
"There is nothing morally unattractive about saying: We need to analyze which way of spending money on health care will produce more benefit and which less, and using our money as efficiently as we can. I don't think there is anything immoral about seeking to achieve environmental benefits with lowest possible costs." It would be more moral to reduce pollution....
taking the cost into account because the money spent on pollution reduction is not available for other worthy activities.
_________is the study of the choices people make to attain their goals, given their scarce resources. A-Economics B-Microeconomics C-Macroeconomics
A-Economics
A market is a group of _______of a good or service and the institution or arrangement by which they come together to trade A-buyers and sellers B-Fims C-buyers and marketers
A-buyers and sellers
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when? A. marginal cost is zero. B. marginal benefit is greater than marginal cost. C. marginal benefit equals marginal cost
C-marginal benefit equal marginal cost
scarcity implies that every society and every individual face trade-offs because scarcity means that...
humans wants are greater than what available resources cab produce
what factors might cause the quantity of smartphones supplies by each firm at each price to be different?
productivity differes due to variations in the use of existing technology
which of the following statements about economic variable is correct?
an economic variable is something measurable that can have different values
in a market system, how does society decide what goods and services will be produced?
consumers, firms, and the government determine what goods and services will be produced by the choices they make
producer surplus will equal the total revenue received by the firms from selling a product in the special case when
cost is zero
when an employer offers a wellness program to its employees, the health insurance premium the employer pays on behalf of the employees are likely to_____
decrease
what does increasing marginal opportunist coasts mean?
increasing the production of the goods requires large and larger decreases in the production of another good
which of the following is NOT a step that economists use in developing a useful economic model?
make a value judgement about the merits of the hypothesis
with respects to the demand for apple iPhones, the increases in the availability of "apps" for android -based smartphones would be expected to...
reduce the demand for apple iPhones because enhancements (in the form of additional "apps") to android-based smartphones increase the lattes's relative appeal
an increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effect?
the substitution effect is the decrease in quantity demanded because the product is more expensice relative to other goods and the income effect is the decrease in quantity demanded owing tp the decline in consumers purchasing power
