Econ 102 Final

If the US imposes a tariff of $1 per imported shirt, the tariff will

-decrease imports of shirts into the US -raise the price of a shirt to US consumers -benefit US shirt producers

in economics, how long is the long run?

Whatever time it takes a firm to vary all inputs

which of the following is most likely to generate a surplus?

a price floor

one result of an effective minimum wage in the market for low-skilled labor is

a surplus of low skilled labor

an increase in the equilibrium quantity of good X can be caused by

a technological improvement in the process of producing good X

public choice economics

applies economic analysis to government decision making.

According to public choice theory, policymakers

are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

in his book, an inquiry into the nature and causes of the wealth of nations, economist adam smith argued that individuals

are motivated by self interest

total consumer surplus in a market is measured as the

area above the market clearing price and beneath the market demanded curve

in a perfectly competitive market, positive economic profits act to

attract new entrants into the industry

the public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments and the manner in which individual choices are made in markets. which of the following descriptions is consistent with the difference between political decision-making and decision-making in markets?

individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets

which of the following statements is most accurate regarding who benefits and loses from establishment of a minimum wage above the market clearing wage?

individuals who obtain jobs benefit because they earn a higher wage, but some individuals lose because employers will not hire them at the minimum wage

under a free market system, the decision of resource allocation is made by

individuals who own the resources

when the calculated price elasticity of demand is -0.45, demand is

inelastic

the theory that people will exchange one good for another when they value the goods equally is called

the exchange of equivalents theory

which of the following describes how a positive externality affects a competitive market?

the externality causes a difference between the private benefit from consumption and the social benefit

The opportunity cost of attending college might be best described as

the highest-valued alternative use of the students time

The theory that the price of a good is determined by its cost of production is called

the labor theory of value

they typical shape of the long-run average cost curve is like

the letter "U"

scarcity implies that people must

make choices

Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. This suggests that for Kathy the

marginal utility of a slice of pizza is positive but decreasing

what is the voting paradox?

the observation that majority voting may not always result in consistent choices

The term "invisible hand" refers to

the power of individual self interest to create spontaneous order

which of the following is NOT a mercentalist idea?

the price of a good is determined by its marginal utility

which of the following would be likely be considered as falling into the domain of microeconomics?

the price of apples

the law of demand includes the statement "other things being equal". These other things include all of the following EXCEPT

the price of that good in the law of demand

the price elasticity of demand measures

the responsiveness of the quantity demanded to changes in price

When there is a positive externality

the social benefit received by consumers is greater than the private benefit.

the special-interest groups model of government

-suggests that governments often have incentives to produce inefficient outcomes -is based on the idea that small groups manipulate the government -is most applicable when benefits apply to fewer people but costs apply to many people

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

2 1/2 russian tea cakes

suppose the cross price elasticity of demand between goods A and B equals 1.5, which of the following is true?

A and B are substitutes because the cross price elasticity is positive

country A would have the absolute advantage compared to country B in the production of corn if

Country A uses fewer resources to produce corn than country B does

Which of the following describes a problem with the labor theory of value?

It suffers from circular reasoning because labor itself has a price

The mercantalists promoted the idea that "public interest" existed separately from individual people. Which of the following ideas does this contradict?

Methodological individualism

How could Adam Smith's comment about the butcher, the brewer, and the baker be accurately rephrased in modern terms?

The butcher, the brewer, and the baker gives us our dinner because they each earn a living by doing so.

a value of the absolute price elasticity of demand equals 0.5 indicates that

a 1% increase in price leads to a 0.5% decrease in quantity demanded

suppose the equilibrium quantity of ethanol has decreased. which of the following could have caused this change?

a decrease in demand

income elasticity relates to

a horizontal shift in a demand curve

according to the law of demand, an increase in the price of a good causes

a leftward movement along the demand curve for that good

macroeconomics often relies on microeconomic analysis because

all aggregates are made up of individuals and firms

in the long run, a firm can change

all inputs

the term ceteris paribus means

all other things remaining constant or equal.

which of the following is an example of an application of the ceteris paribus assumption?

an analysis of how price changes affect how much of a good people will purchase when all other factors are held constant

Roses are more expensive on Valentine's Day than at other times of the year, yet sales of roses are highest on that day. How does economic theory account for this?

an increase in demand pushes up the market clearing price of roses

the article addresses education reform by way of newly designed applications. if any of these apps lead to more skilled and better trained public, the economy would experience

an increase in human capital

in which of the following situations will market clearing price decrease and equilibrium price increase?

an increase in supply with no change in demand

Fred and Ann both decide to see the same movie when they are given free movie tickets. We know that

both bear an opportunity cost since they could have done other things instead of see a movie

self-interest relates to

both monetary and nonmonetary objectives

As an economic concept, scarcity applies to

both money and time

Which of the following statements is TRUE about scarcity?

both rich and poor people face the problem of scarcity

suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. how can you convince your manager that you are worth more money than you are currently being paid?

by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop

Ronald Coase was awarded the 1991 nobel prize in economics primarily for addressing problems related to externalities. which of the following describes coase's work?

coase argued that with clearly defined and enforced property rights and low transaction costs private solutions to the problems of externalities will occur

central planning is a key characteristic of which economic system?

command economy

specialization and trade will be economically efficient if it is based upon

comparative advantage

the idea that consumers ultimately dictate what will be produced by choosing what to purchase is known as

consumer sovereignty

when consumers would have been willing to pay higher prices at various quantities consumed than the market clearing price, the differences are called

consumer surplus

consider the following information, and assume that opportunity costs are constant. on one hand, residents of country A can produce more corn in a year than residents of country B, but they can produce computers at a lower opportunity cost than residents of country B. on the other hand, residents of country B can produce more computers in a year than residents of country A, but they can produce corn at a lower opportunity costs than residents of country A. It can be concluded that

country A should produce computers and trade them for corn produced in country B

Economies of scale occur when

decreases in long-run average costs resulting from increases in output

whenever the absolute value of the price elasticity of demand is greater than 1, but less than infinite,

demand is elastic

Rent controls often have adverse effects, including

deterioration in the quality of existing rental units

who benefits from imports?

domestic consumers

according to economists, when two people make exactly the opposite decision,

each person evaluates the situation according to his/her individual self interest

in a market-based economy, the government

enforces property rights

which of the following is not an example of rent seeking behavior?

engaging in aggressive advertising that slams a competitors market

marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output prices

Price floors are designed to

establish a minimum allowable price

average fixed costs will

fall as output rises

a mixed economic system is best described as an economy with a mix of

free markets and government control

the diamond/water paradox states that things with the --- value in use frequently have --- value in exchange

greatest; little or no

human beings

have unlimited wants

Which of the following is a problem with the exchange of equivalents theory of prices?

if all people value two goods equally, there is nothing to be gained by exchanging them

which of the following is a positive economic statement?

if the price of iphones falls, a larger quantity of iphones will be purchased

government imposed price controls often lead to

illegal trades of the good

goods that are produced in other countries and then sold domestically are called

imports

A reason why a perfectly competitive firm's demand for labor curve slopes downward is that

in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns

adam smith

is considered the founder of economics

self interest

is consistent with many goals that people pursue, including betterment of others

the US has a comparative advantage in producing airplanes if

it can produce them at a lower opportunity cost than can other nations

what is meant by the term "rational ignorance" in the context of public choice economics?

it means the lack an economic incentive for voters to become informed about a candidate or pending legislation

which of the following activities create a negative externality?

keeping a junked car parked in your front lawn

In every economic system, choices must be made because resources are ________ and our wants are ________.

limited; unlimited

suppose mexico has a comparative advantage relative to the US in the manufacture of clothing and the US has a comparative advantage in producing agricultural products. which of the following is most likely to occur?

mexico will sell clothing to the US and the US will sell agricultural products to mexico

When a negative externality exists, the private market produces

more than the economically efficient output level

If one's demand for peanut butter decreases as income rises, the income elasticity of demand for the product is

negative

the face value of money or income is called its --- value

nominal

Which of the following statements is true?

opportunity cost is always a forgone opportunity

The law of demand is based on the observation that

people buy more of a product when the price falls

ceteris paribus, as the price of a good or service increases,

people will buy less of it

a goods price elasticity of demand can be calculated by using the formula of

percentage change in quantity demanded divided by percentage change in price

a perfectly horizontal demand curve has

perfect elasticity

the supply curve has a

positive slope

"if A occurs then B will follow" is a

positive statement

which of the following statements concerning the distinction between positive and normative economics is true?

positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be

The supply curve shows the relationship between:

price of the product and quantity supplied

in a market system, --- provide signals about whether resources are relatively scarce or abundant

prices

Because producers do not bear the external cost of pollution

private production exceeds the economically efficient level

which of the following must occur as a result of ceilings on apartment rents that are set below market clearing rental rates?

property owners respond to the ceilings by constructing new apartment buildings

the market clearing price occurs at a point at which

quantity demanded equals quantity supplied

if a price ceiling is set above the market clearing price, then

quantity demanded will remain equal to quantity supplied at the current market clearing price

if the price of a product increases, we would expect

quantity supplied to increase

Using trade restrictions to protect special interests such as the U.S. auto industry

raises the prices that US consumers must pay for autos

what is the term that explains why voters often lack knowledge of pending legislation, and lack knowledge of the views of candidates for office on a range of issues that affect their own welfare?

rational ignorance

economists assume people behave

rationally

When people donate money to a charity, they behave

rationally if the act gives them satisfaction

When MR < MC for a firm, the firm should

reduce its level of output

Real Value of Money

reflects the purchasing power of money

If people act as if they systematically pursue their own self-interest, then they will most likely

respond predictably to a given incentive

which of the following is one of the four starting points of economics, as described in lecture?

scarcity

which of the following statements about economic scarcity is FALSE?

scarcity only occurs if there are shortages and people wait in line to buy things

to enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. how do these country clubs set the price of membership to ensure they have a waiting list?

set the membership price below the market clearing price

you like to sleep until 11 am during the semester. what is the opportunity cost of attending an 8 am class?

sleep

the less sensitive quantity demanded is to a change in price, the

smaller the absolute value of the price elasticity of demand

economics is a

social science

in the production of goods and services, trade-offs exist because

society has only a limited amount of productive resources

Which of the following describes a zero-sum game?

somebody steals $5 out of your backpack when you aren't looking

if the cross price elasticity of demand between los angeles lakers professional basketball tickets and los angeles dodgers professional tickets is positive, then the two goods are

substitutes

suppose you are told that the equilibrium price of gasoline has increased, while the equilibrium quantity of gasoline has fallen. you are also told that either the demand changed or supply changed, but not both. which of the following must have occurred?

supply decreased

according to the principle of comparative advantage, a nation should specialize in economic activities

that incur lower opportunity costs

if demand is elastic and the price of a product decreases by 10 percent, then

the change in quantity demanded is greater than 10 percent

marginal revenue equals

the change in total revenue from selling one more unit

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

the gains from trade within a price system is

the sum of consumer surplus and producer surplus

people consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than other seasons. what accounts for this?

the supply of fresh fruit increases in the summer

total utility is

the total amount of satisfaction obtained from consumption of a good or service

suppose you have four choices- go to a movie, read a book, watch television, or go to a concert. You choose to go to the movie. The opportunity cost of the movie is

the value of the activity that you would have selected if you hadn't gone to the movie

The theory of derived demand implies that

the value of wood is derived from the value of the products it can be used to make

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

the wages received for the fifth day of work

What led the Classical economists to reject the subjective theory of price?

the water-diamonds paradox

the data on the relationship between imports and employment show that

there is not a casual link between increases in imports and the rate of unemployment

If someone tells you "movie tickets are expensive because celebrities' salaries are so high." which of the following is true?

this statement contradicts the theory of derived demand

the costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

transaction costs

The reason it is important to understand the difference between the "real" and "nominal" values of money is:

what matters to people is the purchasing power of money or income

which of the following statements is correct?

when marginal product is greater than average product, average product is increasing