ECON 2020 (Part 1)
There is a shortage in a market for a product when
Quantity demanded is greater than quantity supplied
Competition is more likely to exist when:
There is easy entry into and exit out of industries
Whenever there are supply-side market failures in the form of costs that suppliers do not have to face, then there will be overproduction of the output.
True
The term consumer sovereignty means that:
What is produced is ultimately determined by what consumers buy
Under what circumstances would you expect economic profits to be zero in a particular industry?
When the industry is neither expanding nor contracting
At the optimal quantity of a public good:
marginal benefit equals marginal cost.
The rationale for the law of demand can best be understood on the basis of:
Diminishing marginal utility
A required element of specialization is:
Exchange and trade
One element of the command system is:
Central planning
Refer to the above table. If a technological advance lowers production costs such that the quantity supplied increases by 60 units of this product at each price, the new equilibrium price would be
$12
Assume that a consumer has $12 in income and she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. For this consumer, the opportunity cost of buying one more apple is
2 bananas
A schedule or curve that shows the various combinations of two products a consumer can purchase with a specific amount of money income is:
A budget line
When economists describe "a market," they mean:
A system that allows buyers and sellers to interact with one another
Which of the following is an example of a public good?
A weather warning system.
Which of the following is an example of market failure?
All of these.
Refer to the above diagram, which shows three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D2?
An increase in consumer incomes
Economics is a social science that studies how individuals, institutions, and society may
Best use scarce resources to achieve the maximum satisfaction of economic wants
Which of the following is a factor of production?
Capital
A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by:
Declining incomes of people in that city
Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are):
External costs in the production of this product
Which expression is another way of saying "marginal benefit"?
Extra benefit
The government receives all of the benefits associated with the production of a public good.
False
Which would not be characteristic of a capitalist economy?
Government ownership of most factors of production
By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars:
Increasing and the quantity decreasing
Which of the following statements about the right to private ownership is false?
It weakens the incentive to maintain the property that one already owns
An "increase in the quantity supplied" suggests a:
Movement up along the supply curve
What are the two characteristics that differentiate private goods from public goods?
Rivalry and excludability
The key economic concept that serves as the basis for the study of economics is
Scarcity
Refer to the above diagram illustrating the market for corn. If the price in this market is fixed at $2 per bushel, then:
Sellers will quickly run out of corn that they bring to market
One major assumption of the economic perspective is:
That individuals' behavior reflect rational self-interest
Among the following examples, the one that best illustrates a public good is:
The bike paths around a city or town
If the price of a product increases:
The consumer surplus will decrease
Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:
The marginal benefit of the book is greater than its marginal cost
Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:
a + b.
Refer to the diagram. If actual production and consumption occur at Q1:
an efficiency loss (or deadweight loss) of b + d occurs.
Public goods are those for which there:
are nonrivalry and nonexcludability.
People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:
demand-side market failure.
The two main characteristics of a public good are:
nonrivalry and nonexcludability.
Economists consider governments to be "wasteful":
whenever they over- or underallocate resources to a project.
