ECON 201 Test1

Normative statement

how the world should be

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.

In economics, the term ________ means ʺadditionalʺ or ʺextraʺ

marginal

What is the difference between an ʺincrease in demandʺ and an ʺincrease in quantity demandedʺ?

An ʺincrease in demandʺ is represented by a rightward shift of the demand curve while an ʺincrease in quantity demandedʺ is represented by a movement along a given demand curve

By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.

C) price; quantity; price

In the market for oranges what will be the effect of a decrease in the supply due to bad weather on the equilibrium price and quantity of oranges?

Price will Increase but Quantity will decrease.

Tom Searchinger, a senior attorney at the Environmental Defense Fund, observed that generous farm subsidies have encouraged farmers to produce more corn and more wheat. How does this affect the market for fertilizer?

The demand for fertilizer increases

Positive Statement

how the world is

if the prcie of grapefruit rises, the substitution effect dueto the price change will cause

a decrease in the quantity demanded of grapefruit

if an increase in income leads to a decrease in the demand for popcorn, then popcorn is

an inferior good

Economists assume that individuals

are rational and respond to incentives

Productive efficiency is achieved when

firms produce goods and services at the lowest cost.

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service.

the inoome effect of a price change refers to the impact of a change in

the quantity demanded when income changes

Suppose when the price of laptops fall, college students buy more laptops. This implies that

there is a negative relationship between laptop prices and quantities purchased by college students.

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

trade-off

) Chips and salsa are complements. If the price of salsa decreases, the demand for chips will increase

true

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

true

Optimal decisions are made at the point where marginal benefit equals the marginal cost

true

Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

true

Opportunity cost

what you give up/ what you want