ECON 202 Test 1 Review

If China can produce one digital camera in 100 hours and one pound of wheat in 4 hours. What is China's opportunity cost for producing one pound of wheat?

0.04 units of a digital camera

Where the demand curve crosses the supply curve determines the _________________________.

market equilibrium

When the market price is below equilibrium there will be a ________________.

shortage

When the market price is above equilibrium there will be a _______________.

surplus

If South Korea can produce one digital camera in 60 hours and one pound of wheat in 3 hours. Which Country China or South Korea should specialize in making digital cameras?

South Korea because China has to give up 25 pounds of wheat for 1 digital camera and South Korea has to give up 20 pounds of wheat.

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

2.5 Russian tea cakes.

A change in demand versus a change in quantity demanded

A change in demand refers to a shift of the demand curve. A shift occurs if there is a change in one of the variables--other than the price of the product-- that affects the willingness of consumers to buy the product. A change in quantity demanded refers to a movement along the demand curve as a result of a change in the product's price.

If a product's price changed, would this be a change in demand or a change in quantity demanded?

A change in quantity demanded, and would cause movement along the demand curve.

Production Possibilities Frontier...

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. Points along the line of the production possibilities frontier are attainable with the resources available. Points below the line of the production possibilities frontier are inefficient because not all resources are being used. Points above the line are unattainable with the current resources.

The Law of Demand is a 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 b A market that meets the conditions of many buyers and sellers c The amount of a good or service that a consumer is willing and able to produce d The rule that, holding everything else constant, increases in price cause increases in quantity supplied, and decreases in price cause decreases in quantity supplied.

a

What variables that shift market supply? a Prices of inputs, Technological change, Prices of substitutes in production, Number of firms in the market, Expected future prices b Income, Prices of inputs, Tastes, Population and demographics, Substitution effect c Income, Prices of related goods, Tastes, Population and demographics, Expected future prices d Income, Prices of related goods, Tastes, Population and demographics, Expected future prices, Substitution effect

a

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is a an inferior good. b a neutral good. c a necessity. d a normal good.

a an inferior good

Opportunity Cost is a The highest valued alternative that must be given up to engage in an activity b The ability of a firm to produce more of a good or service than competitors, using the same amount of resources c The ability of a firm to produce a good or service at a lower opportunity cost than competitors d The inputs used to make goods and services

a The highest valued alternative that must be given up to engage in an activity.

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced a a decrease in supply. b an increase in supply. c an increase in the quantity supplied. d a decrease in the quantity supplied.

a a decrease in supply

Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup. To the Ruiz family, a hamburgers and ketchup are complements. b hamburgers and ketchup and substitutes. c hamburgers and ketchup are normal goods. d hamburgers are normal goods and hot dogs are inferior goods.

a hamburgers and ketchup are complements.

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package? a $20 b $30 c $60 d $60 plus the value of his time

a $20

Supply curve is a A curve 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 demanded c The demand by all the consumers of a given good or service d The amount of a good or service that a consumer is willing and able to purchase at a given price

a A curve that shows the relationship between the price of a product and the quantity of the product supplied

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced a a decrease in supply. b an increase in supply. c an increase in the quantity supplied. d a decrease in the quantity supplied.

a a decrease in supply

When firms decrease the quantity of a product they want to sell at a given price, they supply curve shifts to the ___________, representing a decrease in supply. a left b right c does not move d curves

a left

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 a the sum of consumer surplus and producer surplus is at a maximum. b economic surplus is minimized. c the sum of the benefits to firms is equal to the sum of the benefits to consumers. d the sum of consumer surplus and producer surplus is minimized.

a the sum of consumer surplus and producer surplus is at a maximum.

Economists reason that the optimal decision is to continue any activity up to the point where the a marginal benefit is zero. b marginal benefit is greater than the marginal cost. c marginal cost is zero. d marginal benefit equals the marginal cost.

d marginal benefit equals the marginal cost

Which of the following statements is true? a Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product. b Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product. c Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others. d Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task.

b Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product

Economists assume that rational behavior is useful in explaining choices people make a because irrational people do not make economic choices. b even though people may not behave rationally all the time. c because individuals act rationally all the time in all circumstances. d even though people rarely, if ever, behave in a rational manner.

b even though people may not behave rationally all the time.

Demand curve is a A curve that shows the 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 demanded c The demand by all the consumers of a given good or service d The amount of a good or service that a consumer is willing and able to purchase at a given price

b A curve that shows the relationship between the price of a product and the quantity of the product demanded

Allocative Efficiency is a A situation in which a good or service is produced at the lowest possible cost. b A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. c A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction. d The fair distribution of economic benefits.

b A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

As the price of smartphones decreases, the quantity demanded will a Decrease b Increase c Remain constant d Too little information

b Increase

Which of the following statements is true? a Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product. b Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product. c Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others. d Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task.

b Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.

________________________ is a situation in which a good or service is produced at the lowest possible cost. a Allocative efficiency b Productive efficiency c Equity d Optimal marginalism

b Productive efficiency

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation? a The demand for digital music players is greater than the supply of digital music players. b Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. c The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease. d The shortage will cause an increase in the equilibrium price of digital music players.

b Some consumer will be unable to obtain digital music players at the market price and will an incentive to offer to buy the product at a higher price.

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation? a The demand for digital music players is greater than the supply of digital music players. b Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. c The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease. d The shortage will cause an increase in the equilibrium price of digital music players.

b Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price

Absolute Advantage is a The highest valued alternative that must be given up to engage in an activity b The ability of a firm to produce more of a good or service than competitors, using the same amount of resources c The ability of a firm to produce a good or service at a lower opportunity cost than competitors d The inputs used to make goods and services

b The ability of a firm to produce more of a good or service than competitors, using the same amount of resources

Income effect is a Constant b 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 c 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 d The demand by all the consumers of a given good or service

b The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer's purchasing power

Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, a sellers bear the entire burden of the tax. b buyers bear the entire burden of the tax. c the tax burden will be shared equally between buyers and sellers. d buyers share the burden of the tax with government.

b buyers bear the entire burden of the tax.

The production possibilities frontier shows the combinations of two products that may be produced in a particular time period with available resources. a minimum attainable b maximum attainable c only d equitable

b maximum attainable

When firms increase the quantity of a product they want to sell at a given price, the supply shifts to the____________, representing an increase in supply. a left b right c does not move d curves

b right

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit, a the supply 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. c the demand curve shifted to the right resulting in an increase in the equilibrium price. d 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.

The ratio at which a country can trade its exports for imports from other countries is called a a trade barrier. b the terms of trade. c autarky. d a free trade agreement.

b the terms of trade.

the demand curve shows the marginal ____________ received by consumers, and the supply curve shows the marginal __________ of production.

benefit production

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses? a 2.5 silk leaves b 10 silk leaves c 25 silk leaves d 55 silk leaves

c 25 silk leaves

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant? a The supply curve shifts to the right. b The demand curve shifts to the left. c The demand curve shifts to the right. d The quantity demanded increases.

c The demand curve shifts to the right.

By definition, economics is the study of a how to make money in the stock market. b how to make money in a market economy. c the choices people make to attain their goals, given their scarce resources. d supply and demand.

c the study of the choices people make to attain their goals, given their scarce resources.

What are variables that shift market demand? a Income, Prices of related goods, Substitution effect, Tastes b Income, Prices of related goods, Tastes, Population and demographics, Substitution effect c Income, Prices of related goods, Tastes, Population and demographics, Expected future prices d Income, Prices of related goods, Tastes, Population and demographics, Expected future prices, Substitution effect

c Income, Prices of related goods, Tastes, Population and demographics, Expected future prices

Comparative advantage is a The highest valued alternative that must be given up to engage in an activity b The ability of a firm to produce more of a good or service than competitors, using the same amount of resources c The ability of a firm to produce a good or service at a lower opportunity cost than competitors d The inputs used to make goods and services

c The ability of a firm to produce a good or service at a lower opportunity cost than competitors

Substitution effect is a Constant b 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 c 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 d The demand by all the consumers of a given good or service

c 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

Rent control is an example of a a subsidy for low-skilled workers. b a price floor. c a price ceiling. d a black market.

c a price ceiling.

A production possibilities frontier with a bowed outward shape indicates a the possibility of inefficient production. b constant opportunity costs as more and more of one good is produced. c increasing opportunity costs as more and more of one good is produced. d decreasing opportunity costs as more and more of one good is produced.

c increasing opportunity costs as more and more of one good is produced.

If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is a negative 11 divided by 6. b seven tenths. c negative seven tenths. d 6 divided by 11.

c negative seven tenths.

Willingness to pay measures a the maximum price a buyer is willing to pay for a product minus the amount the buyer actually pays for it. b the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept for the good. c the maximum price that a buyer is willing to pay for a good. d the maximum price a buyer is willing to pay minus the minimum price a seller is willing to accept.

c the maximum price that a buyer is willing to pay for a good.

Japan has developed a comparative advantage in designing and producing automobiles. The source of its comparative advantage in these products is... a abundant supplies of natural resources. b a favorable climate. c a strong central government. d technology.

d technology

Society faces a trade-off in all the following situations except: a when deciding who will receive the goods and services produced. b when deciding what goods and services will be produced. c when deciding how goods and services will be produced. d when some previously unemployed workers find jobs.

d when some previously unemployed workers find jobs.

Which of the following is not a factor of production? a an acre of farmland b a drill press in a machine shop c the manager of the local tire shop d $1,000 in cash

d $1,000 in cash

Law of supply is a 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 b A market that meets the conditions of many buyers and sellers c The amount of a good or service that a consumer is willing and able to produce d The rule that, holding everything else constant, increases in price cause increases in quantity supplied, and decreases in price cause decreases in quantity supplied.

d The rule that, holding everything else constant, increases in price cause increases in quantity supplied, and decreases in price cause decreases in quantity supplied.

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this? a There is an increase in the supply of pool maintenance services. b There is a decrease in the demand for pool maintenance services. c There is a decrease in the quantity of pool maintenance services supplied. d There is a decrease in the supply of pool maintenance services.

d There is a decrease in the supply of pool maintenance services (increase in price of input will decrease the supply)