Econ 202 Exam 1 Review
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $1,000,000 next year playing for a minor league baseball team, $700,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-athlete returning to college next year is ____________ (Enter your response as an integer.)
$1,000,000
Which of the following goods is likely to have an income elasticity of demand greater than one? A. Diamond jewelry B. Gasoline C. Bread D. Salt
A. Diamond jewelry
Which of the following statements is true of the scientific method? A. Empirical arguments are more credible when they are based on a large data set. B. Arguments based on a few anecdotes are mostly true. C. When a researcher looks at a large data set, she is more likely to jump to the wrong conclusions. D. The larger the size of the data set, the greater the scope of inaccuracy in an analysis.
A. Empirical arguments are more credible when they are based on a large data set.
If a market is in equilibrium LOADING... , is it necessarily true that all potential buyers and sellers are satisfied with the market price? A. Yes B. No
B. No
If demand is perfectly elastic, then what is the effect of an increase in price? A. no change in quantity demanded B. a decrease in quantity demanded to zero C. a very small change in quantity demanded D. a change in quantity demanded exactly equal to the change in price
B. a decrease in quantity demanded to zero
The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in A. an increase in the quantity of macaroni and cheese demanded. B. a decrease in the demand for macaroni and cheese. C. a decrease in the quantity of macaroni and cheese demanded. D. an increase in the demand for macaroni and cheese.
C. a decrease in the quantity of macaroni and cheese demanded.
Consider the markets for BP supreme-grade gasoline, all BP grades of gasoline, and all gasoline. For which of these three markets will demand be most elastic? Demand will be most elastic for A. BP supreme-grade gasoline, then for all BP grades of gasoline, and then for all gasoline. B. all BP grades of gasoline, then for BP supreme-grade gasoline, and then for all gasoline. C. all gasoline, then for BP supreme-grade gasoline, and then for all BP grades of gasoline. D. BP supreme-grade gasoline, then for all gasoline, and then for all BP grades of gasoline. E. all gasoline, then for all BP grades of gasoline, and then for BP supreme-grade gasoline.
A. BP supreme-grade gasoline, then for all BP grades of gasoline, and then for all gasoline.
Which of the following statements identifies a difference between correlation and causation? A. Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another. B. Correlation occurs when one thing directly affects another, whereas causation implies a mutual relationship between two things. C. A causal relationship exists between two variables when they are correlated, but correlation does not necessarily exist if there's a causal relationship between two variables. D. Causation cannot arise when correlation is present, and correlation cannot arise when causation is present.
A. Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another.
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement? A. Economics assumes that consumers and firms are rational, not that they always make the right decisions. B. Economics has a lot of problems such as those that caused the Great Recession. C. Economics is a proven field of study, and it has already solved this problem. D. Economics does assume that consumers and firms always make the correct decisions.
A. Economics assumes that consumers and firms are rational, not that they always make the right decisions.
What does increasing marginal opportunity costs mean? A. Increasing the production of a good requires larger and larger decreases in the production of another good. B. The economy is unable to produce increasing quantities of goods and services. C. Production is not occurring on the production possibilities frontier. D. Increasing the production of a good requires smaller and smaller decreases in the production of another good. E. Increasing the production of a good requires decreases in the production of another good.
A. Increasing the production of a good requires larger and larger decreases in the production of another good.
Which of the following describes the substitution effect of a price change? A. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. B. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. C. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. D. The change in quantity demanded of a good that results from the change in the price of a substitute for the good.
A. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
The demand for pearspears is highest during summer and lowest during winter. Yet pearpear prices are normally lower in summer than in winter. What must be happening to the supply of pearspears, from winter to summer, for the equilibrium price to fall? A. The supply increases more than the demand increases. B. The supply increases, but less than the demand increases. C. The supply for pearspears decreases. D. The supply does not change.
A. The supply increases more than the demand increases.
Which of the following best describes scarcity? A. Unlimited wants exceed the limited resources available. B. Prices of goods are very high. C. Wants cannot be fulfilled and thus all goods must be rationed. D. Markets cannot properly allocate resources.
A. Unlimited wants exceed the limited resources available.
This change resulted in a A. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil. B. a surplus of oil such that there is a greater quantity demanded than quantity supplied of crude oil. C. a shortage of oil such that there is a greater quantity demanded than quantity supplied of crude oil. D. a shortage of oil such that there is a greater quantity supplied than quantity demanded for crude oil.
A. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil.
Which of the following is the textbook's definition of a supply schedule? A. a table that shows the relationship between the price of a product and the quantity of the product supplied B. the quantity of a good or service that a firm is willing to supply at a particular price 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. a table that shows the relationship between the price of a product and the quantity of the product supplied
Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase? A. an increase in consumer income B. a drought that sharply reduces cotton output C. unusually good weather that results in a bumper crop of cotton D. a decrease in consumer income
A. an increase in consumer income
Scarcity is central to the study of economics because it implies that A. every choice involves an opportunity cost. B. society must make decisions at the margin. C. wants are unlimited. D. economic agents are rational.
A. every choice involves an opportunity cost.
An omitted variable is a variable that: A. has been left out, and if included, would explain why the variables considered in a study are correlated. B. does not cause other variables in a study to change when it changes. C. is purposely left out as it does not aid an economic analysis. D. is removed from a study as it can lead to the problem of reverse causality.
A. has been left out, and if included, would explain why the variables considered in a study are correlated.
Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts that: "If only one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude A. ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people. B. recognizes the fact that since the organization is a charity, there is an opportunity cost based on the square root of other peoples' needs. C. is the most logical because it is focussed on helping even one person. D. acknowledges the importance of considering all the alternatives.
A. ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
According to a news story, during the summer of 2015, gasoline prices were expected to decline by 32 percent, while "U.S. drivers are expected to consume slightly more gasoline, a 1.6 percent increase, during the summer." Source: Damian J. Troise, "Summer Gas Prices Expected to Be 32 Percent Lower This Year," Associated Press, April 7, 2015. Given this information, the price elasticity of demand for gasoline is negative −0.05. (Enter your response rounded to two decimal places and include a minus sign.) The demand is A. price inelastic because the absolute value is less than one. B. price elastic because the absolute value is greater than zero. C. price elastic because the value is less than zero. D. price inelastic because the value is less than zero.
A. price inelastic because the absolute value is less than one.
Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction workers." Source: Kris Hudson, "Labor Shortage Besets Home Builders," Wall Street Journal, May 1, 2014. In the future, the price increases of new houses in Denver can be expected to be A. smaller because supply is more elastic over time. B. smaller because supply is less elastic over time. C. larger because supply is less elastic over time. D. larger because supply is more elastic over time.
A. smaller because supply is more elastic over time.
Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that A. the demand for tarot card readers has increased. B. the number of tarot card readers has increased. C. the law of demand has been violated. D. tarot card readers are deliberately charging high prices because they provide services for superstitious clients.
A. the demand for tarot card readers has increased.
We can show economic inefficiency: A. with points inside the production possibilities frontier. B. with points on and outside the production possibilities frontier. C. with points inside and on the production possibilities frontier. D. with points on the production possibilities frontier. E. with points outside the production possibilities frontier.
A. with points inside the production possibilities frontier.
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. What is the total cost involved if Maria chooses to travel by train? A. $460 B. $400 C. $420 D. $60
A. $460
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? A. A number between 0 and 1 B. 0 C. 1 D. A negative number
B. 0
The graph to the right shows your weekly demand for pizza. How was this demand curve constructed? A. By computing your consumption of pizza when both the price of pizza and the number of slices you consume per week remain constant. B. By computing your optimal consumption of pizza at the various prices shown, all other variables that affect your demand for pizza held constant. C. By computing your consumption of pizza at various prices, regardless of utility gained. D. By computing your consumption of pizza when the price of pizza remains constant.
B. By computing your optimal consumption of pizza at the various prices shown, all other variables that affect your demand for pizza held constant.
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that Economics LOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs," Social Science Research Network, November 28, 2006; and Famous Economics Majors, Marietta College, Marietta Ohio, May 15, 2012. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government? A. Management and politics have more to do with public relations than economics. B. Economics teaches us how to look at the tradeoffs involved in every decision. C. Economics is less of an issue as you climb the corporate ladder because you usually hire accountants to handle your money. D. Economics is just as valuable to a cashier as it is for a CEO.
B. Economics teaches us how to look at the tradeoffs involved in every decision.
Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety. Similarly, using all its resources in the production of liquor chocolates, the firm can produce 8,000 bars per month. However, during a given month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating on its PPF? A. Most domestic consumers prefer the better quality Swiss chocolates imported by the country. B. Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety. C. Medical reports earlier this year indicated that higher chocolate consumption increases the risk of heart attack. D. In an attempt to cut costs, the company is planning to fire its unproductive resources. E. The opportunity cost of shifting resources from the production of liquor chocolates to dark chocolates is marginal.
B. Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety.
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If the opportunity cost of time increases to $80 per hour, which of the following statements is true? A. Maria should choose to drive as it saves her $10. B. Maria should choose to travel by train as it saves her $10. C. Maria should choose to drive as it saves her $150. D. Maria should choose to travel by train as it saves her $150.
B. Maria should choose to travel by train as it saves her $10.
Which of the following statements is true? A. Positive economics recommends what people ought to do. B. Normative statements depend on personal preferences. C. Positive economics deals with issues that are subjective. D. Normative economic statements can be confirmed or disproven.
B. Normative statements depend on personal preferences.
Which of the following statements is true? A. The principle of optimization is only accurate when it comes to making monetary decisions. B. Rational economic agents maximize more than just monetary income. C. It is not necessary to consider the risks of a particular alternative while making an optimal decision. D. An individual does not require information to make optimal decisions.
B. Rational economic agents maximize more than just monetary income.
Which of the following claims is most likely to suffer from reverse causality? A. Crime rate is seen to be lower in countries having a higher level of poverty. B. Relatively wealthy people tend to be relatively healthy. C. More hours of study is likely to lead to better results. D. Higher income increases consumption.
B. Relatively wealthy people tend to be relatively healthy.
________ occurs when the direction of cause and effect is mixed up in a study. A. Omitted variable bias B. Reverse causality C. Adverse causality D. Limited information bias
B. Reverse causality
Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Blu−ray players (a complement to LCD televisions)? A. The demand for Blu−ray players would decrease because consumers could afford to buy fewer LCD televisions and Blu−ray players. B. The demand for Blu−ray players would increase and the equilibrium price of Blu−ray players would increase. C. The demand for Blu−ray players would increase and the equilibrium price of Blu−ray players would decrease. D. The supply of Blu−ray players would increase and the equilibrium price of Blu−ray players would decrease.
B. The demand for Blu−ray players would increase and the equilibrium price of Blu−ray players would increase.
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Source: Leonard Fleck, Just Caring: Health Care Rationing and Democratic Deliberation. New York: Oxford University Press, 2009. Is it necessary for all economic systems to limit services such as health care? Yes A market system prevents people from getting as many goods and services as they want due to which of the following? A. The government because it allocates the goods and services. B. Their income. C. Both A and B. D. Neither A nor B.
B. Their income.
The three economic questions that every society must answer are A. What kind of government will the society have, how will it be run, and who will run it? B. What goods will be produced, how will they be produced, and who will receive the goods? C. What are the prices of goods, how are they determined, and who will pay for them? D. What economic system will be used, how will it be implemented, and who will make market decisions?
B. What goods will be produced, how will they be produced, and who will receive the goods?
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational? A. Microsoft's choice was rational: the price will maximize profit. B. When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality. C. Microsoft's choice cannot be rational: the price is clearly more than most people are willing and able to pay. D. We cannot assume that this pricing decision was rational because we do not have enough information to make an assumption.
B. When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
Causation occurs when: A. two variables tend to move in the same direction. B. a change in one variable is the reason for the change in another variable. C. two variables tend to move in opposite directions. D. a change in one variable does not cause any change in another variable.
B. a change in one variable is the reason for the change in another variable.
Which of the following is the textbook's definition of a supply curve? A. a table that shows the relationship between the price of a product and the quantity of the product supplied B. a curve that shows the relationship between the price of a product and the quantity of the product supplied C. the quantity of a good or service that a firm is willing to supply at a particular price D. None of the above.
B. a curve that shows the relationship between the price of a product and the quantity of the product supplied
An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been "enough to help trigger a price collapse." Source: Georgi Kantchev and Bill Spindle, "Shale-Oil Producers Ready to Raise Output," Wall Street Journal, May 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when A. demand is relatively elastic. B. demand is relatively inelastic. C. supply is perfectly elastic. D. demand is perfectly elastic.
B. demand is relatively inelastic.
Source: Christopher Harder, "Investors Take Closer Look at Output," Wall Street Journal, May 18, 2015. a. In referring to a "global glut of crude," the article describes the result of a significant A. increase in demand for, relative to the supply of, crude oil. B. increase in supply of, relative to the demand for, crude oil. C. increase in demand for, and the supply of, crude oil. D. decrease in supply of, relative to the demand for, crude oil.
B. increase in supply of, relative to the demand for, crude oil.
What is the economic definition of utility? Utility is A. the change in enjoyment or satisfaction a person receives from consuming one additional unit of a good or service. B. the enjoyment or satisfaction people receive from consuming goods and services. C. the decrease in additional satisfaction consumers receive as they consume more of a good or service during a given period of time. D. the sum of consumer and producer surplus. E. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
B. the enjoyment or satisfaction people receive from consuming goods and services.
The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls, A. the income and substitution effects offset each other but the price effect of an inferior good leads you to buy less corn. B. the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded. C. both the income and substitution effects reinforce each other to increase the quantity demanded. D. the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
B. the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit, A. the demand curve shifted to the left resulting in a decrease in the equilibrium price. B. the supply curve shifted to the left resulting in an increase in the equilibrium price. C. the supply curve shifted to the right resulting in an increase in the equilibrium price. D. the demand curve shifted to the right resulting in an increase in the equilibrium price.
B. the supply curve shifted to the left resulting in an increase in the equilibrium price.
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because A. the income elasticity of demand for oil is negative. B. the supply of oil is inelastic. C. the market for oil is relatively competitive. D. OPEC has been successful in controlling the quantity of oil its members supply. E. the demand for oil is elastic.
B. the supply of oil is inelastic.
Economists assume that people are rational in the sense that A. they generally make the correct choices. B. they use all available information as they take actions intended to achieve their goals. C. they do not respond to economic incentives. D. they make decisions based on total, rather than marginal, variables.
B. they use all available information as they take actions intended to achieve their goals.
We can show economic efficiency: A. with points outside the production possibilities frontier. B. with points on the production possibilities frontier. C. with points inside and on the production possibilities frontier. D. with points on and outside the production possibilities frontier. E. with points inside the production possibilities frontier.
B. with points on the production possibilities frontier.
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria borrows her parents' car and pays for only the gasoline, what is her total cost of driving to destination A? A. $300 B. $340 C. $90 D. $250
B. $340
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria's opportunity cost of time increases to $80 per hour, the cost involved in taking the train is: A. $970. B. $720. C. $800. D. $320.
B. $720.
In a market system, how does society decide what goods and services will be produced? A. What goods and services will be produced is determined by a vote of consumers. B. Consumers, firms, and the government determine what goods and services will be produced by the choices they make. C. The government decides what goods and services will be produced. D. Firms alone determine what goods and services will be produced.
B. Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
If the cross-price elasticity of demand is negative, then the products are: A. substitutes, but if it is positive, then the products are complements. B. complements, but if it is positive, then the products are substitutes. C. relatedrelated, but if it is positive, then the products are unrelatedunrelated. D. necessitiesnecessities, but if it is positive, then the products are luxuriesluxuries. E. inferiorinferior goods, but if it is positive, then the products are normalnormal goods.
B. complements, but if it is positive, then the products are substitutes.
Utility refers to how much consumers utilize a product or service. A. True B. False
B. False
Which of the following is most likely to be an example of causation? A. A soccer player scores 4 goals when he wears red socks. He concludes that the red socks helped him score the goals. B. The crime rate is high in a country. The literacy rate is high as well. C. A firm producing CFLs installs new machinery. The per-day production of CFLs increases. D. A student wins money by scratching a ticket with a particular coin. He decides to scratch all tickets with the same coin in the future.
C. A firm producing CFLs installs new machinery. The per-day production of CFLs increases.
Which of the following illustrates the law of supply? A. An increase in the number of firms in an industry causes a shift of the supply curve. B. A change in price causes a shift of the supply curve. C. An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied. D. All of the above illustrate the law of supply.
C. An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.
Which of the following statements is true about data? A. Facts that describe the world are not considered data. B. Convincing data analysis in economics relies on using a small sample. C. Consistency of models can be checked using data. D. Empiricism does not necessarily involve data.
C. Consistency of models can be checked using data.
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol? A. S increases, D no change, P decreases, Q increases B. D and S increase, P and Q decrease C. D increases, S no change, P and Q increase D. D no change, S increases, P decreases, Q decreases
C. D increases, S no change, P and Q increase
Soo Jin shares a oneminus−bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics student, you rightly conclude that A. Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $950. B. the cost of having one's own space outweighs the benefits. C. Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250. D. Soo Jin did not have a choice; her roommate was a slob.
C. Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250.
From the list below, select the variable that will cause the supply curve to shift: A. Consumer income B. Population and demographics C. The cost of raw materials D. Prices of related goods
C. The cost of raw materials
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy? A. The country has eliminated scarcity. B. The country is maximizing its opportunity cost. C. The country is operating on its production possibilities frontier. D. All of the above occur if a country uses all available resources.
C. The country is operating on its production possibilities frontier.
An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline−powered automobiles (a substitute for electric automobiles)? A. The demand for gasoline−powered automobiles would increase and the equilibrium price of gasoline−powered automobiles would decrease. B. The supply of gasoline−powered automobiles would increase and the equilibrium price of gasoline−powered automobiles would decrease. C. The demand for gasoline−powered automobiles would increase and the equilibrium price of gasoline−powered automobiles would increase. D. The demand for gasoline−powered automobiles would decrease because consumers could afford to buy fewer gasoline−powered automobiles.
C. The demand for gasoline−powered automobiles would increase and the equilibrium price of gasoline−powered automobiles would increase.
What are the implications of this idea for the shape of the production possibilities frontier? A. The production possibilities frontier will have a positive slope. B. The production possibilities frontier will have a negative slope. C. The production possibilities frontier will be bowed outward. D. The production possibilities frontier will be bowed inward. E. The production possibilities frontier will be a straight line.
C. The production possibilities frontier will be bowed outward.
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. an increase in the usefulness of a product as the number of consumers who use it increases B. a change in the price of a substitute for the good C. a change in price making the good more or less expensive relative to other goods D. the tendency of people to be unwilling to sell something they own
C. a change in price making the good more or less expensive relative to other goods
In many cities, firms that own office buildings can renovate them for use as residential apartments. According to a news story, in many cities "residential rents are surpassing office rents." Source: Eliot Brown, "Developers Turn Former Office Buildings Into High-End Apartments," Wall Street Journal, May 7, 2014. The response to an increase in residential rents would be A. a decrease in the supply of office space, shifting it to the right. B. an increase in the supply of office space, shifting it to the right. C. a decrease in the supply of office space, shifting it to the left. D. an increase in the supply of office space, shifting it to the left.
C. a decrease in the supply of office space, shifting it to the left.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. The grading system used by a teacher can affect the incentives of students to learn the course material by A. uniformly weighting all course components. B. doubling the points assigned to each component of the course. C. altering the payoffs to achieving success on the various components of the course. D. none of the above since student performance is based on innate intelligence.
C. altering the payoffs to achieving success on the various components of the course.
Consider firms selling three goodslong dash—one firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with A. an income elasticity of demand less than zero will decline along with the sales of a good with an income elasticity of demand greater than zero but less than one. B. an income elasticity of demand less than zero will increase along with the sales of a good with an income elasticity of demand greater than one. C. an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most. D. an income elasticity of demand less than zero will decline the most and sales of a good with an income elasticity of demand greater than one will increase the most.
C. an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.
Trinh quits his $80,000minus−aminus−year job to become a fullminus−time volunteer at a museum. What is the opportunity cost of his decision? A. 0 since he will no longer be earning a salary B. the value he attributes to the joy of working at a museum C. at least $80,000 D. depends on the "going rate" of museum employees
C. at least $80,000
Suppose the demand for smartwatches increases rapidly during 2016. At the same time, six more firms begin producing smartwatches. A student remarks that, because of these events, we can't know for certain whether the price of smartwatches will rise or fall. The student's remarks (that, because of these events, we can't know for certain whether the price of smartwatches will rise or fall) is A. correct. When there is an increase in supply and an increase in demand, the change in both new equilibrium price and equilibrium quantity are unknown. B. incorrect. When there is an increase in supply and an increase in demand, the new equilibrium price will be unambiguously lower. C. correct. When there is an increase in supply and an increase in demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown. D. incorrect. When there is an increase in supply and an increase in demand, the new equilibrium price will be unambiguously higher.
C. correct. When there is an increase in supply and an increase in demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown.
Suppose gasoline has few close substitutes available. If so, then an increase in the price of gasoline will likely A. not change the quantity of gasoline demanded. B. decrease the quantity of gasoline demanded by a relatively large amount. C. decrease the quantity of gasoline demanded by a relatively small amount. D. increase the quantity of gasoline demanded by a relatively large amount. E. increase the quantity of gasoline demanded by a relatively small amount.
C. decrease the quantity of gasoline demanded by a relatively small amount.
In late 2014, oil prices were falling but some energy traders were convinced that oil prices would begin to rise within a few months. According to a news story, these expectations were causing some "traders to put oil in storage while they wait for prices to rise." Source: Nicole Friedman, "Saudi Arabia's Surprise Move Spurs Quirk for U.S. Oil Futures," Wall Street Journal, November 4, 2014. Holding some oil in storage rather than selling it would A. increase the supply of oil, shifting it to the left. B. decrease the supply of oil, shifting it to the right. C. decrease the supply of oil, shifting it to the left. D. increase the supply of oil, shifting it to the right.
C. decrease the supply of oil, shifting it to the left.
Consider the demand for cigarettes. Suppose the government increases the price of cigarettes by raising cigarette taxes. How will this affect the demand for cigarettes over time? If the price of cigarettes increasesincreases, then the quantity of cigarettes demanded will A. decrease, and this effect will likely remain constant over time. B. likely never change either initially or over time. C. decrease, and this effect will likely become larger (in absolute value) over time. D. increase, and this effect will likely become larger (in absolute value) over time. E. decrease, but this effect will likely become smaller (in absolute value) over time.
C. decrease, and this effect will likely become larger (in absolute value) over time.
In response to the global glut of oil, the market price will A. rise to a new, higher equilibrium price at which the quantity demanded would be greater than the quantity supplied. B. fall to a new, lower equilibrium price at which the quantity demanded would be lower than the quantity supplied. C. fall to a new, lower equilibrium price at which the quantity demanded would equal the quantity supplied. D. rise to a new, higher equilibrium price at which the quantity demanded would equal the quantity supplied.
C. fall to a new, lower equilibrium price at which the quantity demanded would equal the quantity supplied.
The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises, A. the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded. B. the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas. C. the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in the quantity demanded. D. both the income and substitution effects reinforce each other to decrease the quantity demanded.
C. the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in the quantity demanded.
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria's opportunity cost of time increases to $80 per hour, the cost of driving to destination A is: A. $480. B. $970. C. $730. D. $800.
C. $730.
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. Maria should choose to: A. travel by train, as it will save her $30 in travel time. B. drive, as it will give her a real savings of $150. C. drive, as it will save her $120. D. travel by train, because it is quicker.
C. drive, as it will save her $120.
The income effect causes quantity demanded to ________ when the price of a normal good decreases, and causes quantity demanded to ________ when the price of an inferior good decreases. A. decrease; decrease B. increase; increase C. increase; decrease D. decrease; increase
C. increase; decrease
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 only
D. A and C only
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged? A. D decreases, S no change, P and Q decrease. B. D no change, S decreases, P increases, Q increases. C. D and S decrease, P and Q increase. D. S decreases, D no change, P increases, Q decreases.
D. S decreases, D no change, P increases, Q decreases.
For which of the following products is the price elasticity of demand (in absolute value) the largest? A. cigarettes B. milk C. automobiles D. Tide liquid detergent
D. Tide liquid detergent
A production possibilities frontier (PPF) is A. a curve that shows the potential productive capabilities of the frontier (defined as the area outside of cities) of a developing economy. B. a curve that illustrates the demand of two goods for the average consumer. C. a curve showing the generally attainable combinations of two products that may be produced with all planned or potential, yet undeveloped technology. D. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
D. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
When economists speak of a shortageshortage, they mean a situation in which A. some consumers aresome consumers are unable to makeunable to make a purchase ata purchase at the current price.the current price. B. the market price is belowbelow the equilibrium price. C. the quantity demandeddemanded exceeds quantity supplied. D. all of the above. E. A and B only.
D. all of the above.
Complete the following statement: "When there is a shortage LOADING... of a good A. as prices increase, producers are driven to produce less. B. producers react to shortages by lowering prices. C. decreasing prices lead to a change in demand. D. consumers compete against one another by bidding the price upward. E. as prices increase, consumer demand more of a particular good. The process continues until the market is finally in equilibrium."
D. consumers compete against one another by bidding the price upward.
An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eyeminus−surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments A. decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries. B. decreased demand and increased supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries. C. decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries. D. decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.
D. decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.
The price elasticity of demand in the United States for crude oil has been estimated to be minus−0.061 in the short run and minus−0.453 in the long run. Source: John C. B. Cooper, "Price Elasticity of Demand for Crude Oil: Estimate for 23 Countries," OPEC Review, March, 2003, pp. 1-8. The demand for crude oil A. is equally price inelastic in both the short and long run as there are not many substitutes for crude oil. B. is more price inelastic in the long run than in the short run because in the short run a substitute for crude oil may be found. C. is price elastic in both the short and long run as there exists many substitutes for crude oil. D. is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.
D. is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.
When the price of a product changes, A. it changes the relative price of the product causing a network effect and at the same time it changes the purchasing power of the buyer causing an income effect as well. B. it only causes a substitution effect by changing the relative price of the product. C. it only causes an income effect by changing the purchasing power of the consumer. D. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
D. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
The glut will start to shrink when crude oil producers A. increase the amount that they offer for sale, and buyers decrease the amount they buy. B. increase the amount that they offer for sale, and buyers increase the amount they buy. C. reduce the amount that they offer for sale, and buyers decrease the amount they buy. D. reduce the amount that they offer for sale, and buyers increase the amount they buy.
D. reduce the amount that they offer for sale, and buyers increase the amount they buy.
A sportswriter writing about the Cleveland Indians baseball team made the following observation: "If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically." Source: David Schoenfiel, "Chat with David Schoenfield," espn.com, November 27, 2012. The sportswriter is assuming that the demand for Indians tickets is A. relatively price elastic. B. perfectly price inelastic. C. perfectly price elastic. D. relatively price inelastic.
D. relatively price inelastic.
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 A. economics. B. the market. C. rationality. D. scarcity.
D. scarcity.
A production possibilities frontier: A. shows the act of buying and selling. B. shows how unlimited wants exceed the limited resources available to fulfill those wants. C. shows the market for a good or service. D. shows the maximum attainable combinations of two goods that may be produced with available resources. E. shows how participants in the market are linked.
D. shows the maximum attainable combinations of two goods that may be produced with available resources.
Consider the supply of oiloil. What would make the supply of oiloil more elastic? The supply of oiloil would become more elastic if A. the definition of the market becomes narrower. B. it becomes a larger portion of a consumer's budget. C. it were more of a luxury. D. the time horizon becomes longer. .E. more substitutes were available.
D. the time horizon becomes longer.
According to a news story about the International Energy Agency, the agency forecast that "the current slide in [oil] prices won't [reduce] global supply." Source: Sarah Kent, "Plunging Oil Prices Won't Dent Supply in Short Term," Wall Street Journal, December 12, 2014. Would a decline in oil prices ever cause a reduction in the supply of oil? A. Yes, a decline in oil prices would reduce the supply of oil, but not the quantity of oil supplied. B. No, the supply of oil is fixed. C. Yes, a decline in oil prices would reduce both the quantity of oil supplied and the supply of oil. D. No, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.
D. No, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.
The production possibilities frontier will shift outward A. if resources are not used to produce capital goodsif resources are not used to produce capital goods. B. if production occurs outside the production possibilities frontier. C. if resources are not used in production. D. if resources are used to produce consumption goods. E. if technological advances occurif technological advances occur.
E. if technological advances occurif technological advances occur.
Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. "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 at the lowest possible costs." Source: David Wessel, "Precepts from Professor Summers," Wall Street Journal, October 17, 2002. It would be more moral to reduce pollution, A. not taking the cost into account because pollution is potentially harmful to our health. B. not taking the cost into account because pollution reduction is typically associated with large benefits. C. taking the cost into account because reducing pollution often reduces economic growth. D. taking the cost into account because the total cost of reducing pollution is likely enormous. E. taking the cost into account because money spent on pollution reduction is not available for other worthy activities.
E. taking the cost into account because money spent on pollution reduction is not available for other worthy activities.
he cross-price elasticity of demand is A. the percentage change in quantity demanded divided by the percentage change in income. B. the percentage change in quantity supplied divided by the percentage change in price. C. the percentage change in quantity demanded of one good divided by the percentage change in the quantity of another good. D. the percentage change in quantity demanded divided by the percentage change in price. E. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
E. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
Flatter demand curve means it is more ______________.
Elastic
Perfectly elastic demand curve is ____________________.
Horizontal
Indicate which of the following statements represent positive analysis and which represent normative analysis. The federal government should spend more on AIDS research. This represents _____________________.
Normative analysis
Indicate which of the following statements represent positive analysis and which represent normative analysis. The price of coffee at Starbucks is too high. This represents ___________________.
Normative analysis
Therefore, the cross-price elasticity of demand between "substitutes" is most likely _____________________ and the cross-price elasticities of demand between "complements" is most likely ____________________ .
Substitutes = positive Complements = negative
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus−2.5 and the price elasticity of demand for all types of breakfast cereals to be minus−0.9. The demand for Post Raisin Bran cereal is _____________________, and the demand for all types of breakfast cereals is inelastic . Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal A. is defined more narrowly B. has fewer substitutes availablehas fewer substitutes available. C. is consumed over a shorter period of time. D. is more of a necessity. E. is a smaller share of a consumer's budget.
_________ = elastic; A. ...is defined more narrowly
Indicate which of the following statements represent positive analysis and which represent normative analysis. Rising paper prices will increase textbook prices. This represents ________________________.
positive analysis
Indicate which of the following statements represent positive analysis and which represent normative analysis. a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents __________________.
positive analysis
Supply curve perfectly inelastic = _______________
vertical line
Absolute advantage -
whoever produces the most regardless of opportunity cost
