Econ Exam 1

People face trade-offs

The adage "there is no such thing as a free lunch" means -even people on welfare have to pay for food -the cost of living is always increasing -people face tradeoffs -all costs are included in the price of a product

results in a movement downward and to the right along a demand curve

an increase in quantity demanded -results in a movement downward and to the right along the demand curve -results in a movement upward and to the left along the demand curve -shifts the demand curve to the left -shifts the demand curve to the right

rightward shift of a supply curve

an increase in supply is represented by a -movement downward and to the left along a supply curve -movement upward and to the right along a supply curve -rightward shift of a supply curve -leftward shift of a supply curve

inflation

an increase in the overall level of prices in an economy is referred to as -the income effect -inflation -deflation -the substitution effect

increase

consider the market for medical doctors. suppose the opportunity cost of going to medical school decreases for many individuals. suppose it generally takes about 10 years to become a practicing doctor. holding all else constant, in ten years the equilibrium quantity of doctors will -increase -decrease -not change -it is not possible to determine what will happen to the equilibrium quantity

greater than 1

demand is elastic if the price elasticity of demand is -equal to 1 -less than 1 -equal to 1 -greater than 1

the quantity demanded changes only slightly when the price of the good changes

demand is said to be inelastic if -the quantity demanded changes only slightly when the price of the good changes -the price of the good responds only slightly to change in demand -buyers respond substantially to changes in the price of the good -demand shifts only slightly when the price of the good changes

true

goods with close substitutions tend to have more elastic demands than do goods without close substitute -true -false

more elastic demand

goods with many close substitutes tend to have -income elasticities of demand that are negative -price elasticities of demand that are unit elastic -less elastic demands -more elastic demands

the demand curve shifts

if something happens to alter the quantity demanded at any given price, then -the demand curve become steeper -the demand curve becomes flatter -the demand curve shifts -we move along he demand curve

reduce the number of acres they plant to decrease their output

if soybean farmers know that the demand for soybeans is inelastic in order to increase their total revenues they should -use more fertilizers and weed killers to increase their fields -reduce the number of acres they plant to decrease their output -plant additional acres to increase output -both a and b are correct

false

if the cross price elasticity of demand for two goods is negative, then the two goods are substitutes -true -false

true

if the income elasticity of demand for a good is negative then the good must be an inferior good -true -false

12.5%

if the price elasticity of supply is 0.4, and the price increase led to a 5% increase in quantity supplies, then the price increase is about -2% -1.2% -12.5% -0.25%

the availability of close substitutes in determining the price elasticity of demand

if the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. but if the price of salt rises, people would have difficult purchasing something to use in its place. these examples illustrate the importance of - the time horizon in determining the price elasticity of demand -the availability of close substitutes in determining the price elasticity of demand -the definition of a market in determining the price elasticity of demand -a necessity versus a luxury in determining the price elasticity of demand

market

a group of buyers and sellers of a particular good or service is called -coalition -economy -market -competition

the prices of the good or service that is being supplied

a movement along the supply curve might be caused by a change in -production technology -input prices -expectations about future prices -the price the good or service that is being supplied

false

a profit maximizing competitive firm will hire workers up to the point at which the wage equals the marginal product of labor -true -false

all of the above are correct

a society allocates its scarce resources to various uses. these scarce resources include -land -people -machines -all of the above are correct

false

suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. the price elasticity of demand for this good is equal to 2.0 -true -false

government should become involved in markets when those markets fail to produce efficient or fair outcomes

the basic principles of economics suggests that -markets are seldom, if ever, a good way to organize economic activity -government should become involved in markets when trade between countries are involved -government should become involved in markets when those markets fail to produce efficient or fair outcomes -all of the above are correct

both markets for goods and services and markets for labor services

the basic tools for supply and demand apply to -both markets for goods and services and markets for labor services -markets for goods and services but not to markets for labor -markets for goods and services but not to markets for factors of production -all markets except those in which demand is derived demand

true

the income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage in income -true -false

factors of production

the inputs used to produce goods and services are called -profit factors -marginal products -labor demands -factors of production

workers change the number of hours that they want to work at any given wage

the labor supply curve shifts when -employers need to hire more people -employers develop new technology -workers change the number of hours that they want to work at any given wage -workers become more productive

falls, the quantity demanded of the good rises

the law of demand states that, other things equal, when the price of a good -falls, demand for the good rises -rises, the quantity demanded of the good rises -rises, the demand for the good falls -falls, the quantity demanded of the good rises

prices

the signals that guide the allocation of resources in a market economy are -surpluses and shortages -quantities -government policies -prices

prices adjust to eliminate shortages

there is no shortage of scarce resources in a market economy because -the government makes shortages illegal -resources are abundant in market economies -prices adjust to eliminate shortages -quantity supplies is always greater than quantity demanded in market economies

productivity

what is the most important factor that explains differences in living standards across countries -the quantity of money -equality -productivity -the level of unemployment

true

when an increase in the price of one good lowers the demand for another good, the two goods are called complements -true -false

reduce their quantity demanded more in the long run than the short run

when consumers face rising gasoline prices, then typically -reduce their quantity demanded more in the long run than in the short run -reduce their quantity demanded more in the short run than in the long run -increase their quantity demanded in the short run but reduce their quantity demanded in the long run -do not reduce their quantity demanded in the short run or in the long run

direction and magnitude of the effect

when studying how some event or policy affects a market, elasticity provides information on the -tradeoff between quantity and efficiency -direction and magnitude of the effect -effect on the budget deficit or surplus -change in the costs of production

equality is improved, but efficiency is not

when the government redistributes income from the wealthy to the poor -efficiency is improved, but equality is not -equality is improved, but efficiency is not -both efficiency and equality are improved -neither efficiency nor equality are improved.

increase quantity demanded

a decrease in the price of a good will -increase demand -decrease demand -increase quantity demanded -decrease quantity demanded

laws that reduce pollution raise cost of production and reduce incomes

a tradeoff exists between a clean environment and a higher level of income in that -studies show that the individuals with higher levels of income pollute less that low income individuals -efforts to reduce pollution typically are not completely successful -laws that reduce pollution raise costs of production and reduce incomes -employing individuals to clean up pollution causes increases in employment and income

all of the above are correct

according to the neoclassical theory of distribution, the wages paid to the workers depend on the -supply of labor - demand for labor -marginal productivity of labor - all of the above are correct

$50

as a result of increasing its workforce from 9 workers to 10 workers, a firms total revenue per day increases from $60,000 to $60,250 and its total cost per day increases from $58,500 to $58,700. the marginal profit of the 10th worker is --%50 -$50 -$200 -$250

exactly equals the quantity that sellers are willing and able to sell

at the equilibrium price, the quantity of the good that buyers are willing and able to buy -is greater than the quantity that sellers are willing and able to sell -exactly equals the quantity that sellers are willing and able to sell -is less than the quantity that sellers are willing and able to sell -either a or c could be correct

less competition

benefits from trade would not include -the ability of people and nations to specialize -a greater variety of goods and services becoming available -less competition -lower prices

true

cross price elasticity of demand measures how the quantity demanded of one good charges as the price of another good changes -true -false

the marginal product of an input decreases as the quantity of input increases

diminishing marginal product occurs when -the marginal product of an input increases as the quantity of the input increases -the marginal product of an input decreases as the quantity of the input increases -total output increases as the quantity of an input increases -total output decreases as the quantity of an input increases

each member of society has the same income

economist use the word equality to describe a situation in which -each member of society has the same income - each member of society has access to abundant quantities of goods and services, regardless of his or her income -society is getting the maximum benefits from its scarce resources -society's resources are used efficiently

society is getting the maximum benefits from its scarce resources

efficiency means that -society is conserving resources in order to save them for the future -societys goods and services are distributed equally among societys members -societys goods and services are distributed fairly, though not necessarily equally, among societys members -society is getting the maximum benefits from its scarce resources

false

ellen recieven a raise at her current part-time job from $8 to $10 per hour. if her labor supply curve is upward sloping, she will work fewer hours after receiving the pay raise -true -false

tends to be elastic

for a good that is a luxury, demand -tends to be inelastic -tends to be elastic -has unit elasticity -cannot be represented by a demand curve in the usual way

scarcity

fundamentally, economics deals with -scarcity -money -poverty -banking

3

how many workers should the firm hire -1 -2 -3 -4

0.5, and supply is inelastic

if a 30% change in price causes a 15% change in quantity supplied, then the price elasticity of supply is about -0.5, and supply is elastic -2, and supply is inelastic -2, and supply is elastic -0.5, and supply is inelastic

false

if orange juice and apple juice are substitutes, and increase in the price of the orange juice will hit the demand curve for apple juice to the left -true -false

both a and b are correct

in a representative labor market -the wage adjusts to balance the supply and demand for labor -the wage equals the value of the marginal product of labor -an increase in the supply of labor increases the equilibrium wage -both a and b are correct

all of the above are correct

in competitive markets -firms produce identical products -no individual buyer can influence the market price -no individual seller can influence the market price -all of the above are correct

equipment and structures used in production

in economics, the term capital refers to -money -stocks and bonds -equipment and structures used in production -all of the above are correct

false

in general, demand curves for necessities tend to be price elastic -true -false

the combined actions of millions of households and firms

in most societies, resources are allocated by -a single central planner -a small number of central planners - those firms that use resources to provide goods and services -the combined actions of millions of households and firms

how society manages its scarce resources

in the broadest sense, economics is the study of -production methods -how society manages its scarce resources -how households decide who preforms which tasks -the interaction of businesses and government

value of the marginal product of land

owners of the land are compensated according to the -absolute level of production from the land -number of laborers the land can support -purchase price of the land stock -value of the marginal product of land

scarce for household and scarce for economies

resources are -scarce for households but plentiful for economies -plentiful for households but scarce for economies -scarce for households and scarce for economies -plentiful for households and plentiful for economies

both a and b are correct

roxannes hourly wage increases from $9 to $13. which of the following describes a consequence of the increase in roxanne's wage -the opportunity cost of roxannes leisure time has increased -roxannes may choose to work fewer hours due to the increase in her wage -if roxannes labor supply curve is upward sloping, she will choose to work fewer hours -both a and be are correct

all of the above are correct

the demand for godiva mint chocolates is likely quite elastic because -all of the above are correct -the market is narrowly defined -this particular type of chocolate is views as a luxury by many chocolate lovers -there are many close substitutes

output per additional unity of labor

the marginal product of labor is defined as the change in -output per additional unit of revenue -output per additional unit of labor -revenue per additional unit of labor -revenue per additional unit of output

decrease in price

the movement from point a to point b on the graph is causes by -increase in price -decrease in price -decrease in the price of a substitute good -increase in income

resources are limited

the phenomenon of scarcity stems from the fact that -most economies production methods are not very good -in most economies, wealthy people consume disproportionate quantities of goods and services -governments restrict production of too many goods and services -resources are limited

quantity demanded responds a change in price

the price elasticity of demand measures how much -demand responds to a change in supply -quantity demanded responds to a change in income -price responds to a change in demand -quantity demanded responds to a change in price

true

the quantity available of one factor of production can affect the marginal product of other factors -true -false

willing and able to purchase

the quantity demanded of a good is the amount that buyers are -willing to purchase -willing and able to purchase -willing, able, and need to purchase -able to purchase

sellers are willing and able to sell

the quantity supplied of a good is the amount that -buyers are willing and able to purchase -sellers are able to produce -buyers and sellers agree will be brought to market -sellers are willing and able to sell

refers to the quantity of goods and services produced from each unit of labor input

the term 'Productivity' -means the same thing as 'efficiency' -refers to the variety of goods and services from which households can choose when they shop -refers to the quantity of goods and services produced from each unity of labor input -is seldom used by economist, as its meaning is not precise

equilibrium

the unique point at which the supply and demand curved intersect is called -market harmony -coincidence -equivalence -equilibrium

the good is a luxury rather than a necessity

the value of the price elasticity of demand for a good will be relatively large when -the time period in question is relatively short -all of the above are correct -the good is a luxury rather than a necessity -there are no good substitutes available for the good

rental price of capital is to the capital market

the wage is to the labor market as the -rental price of capital is to the capital market -purchase price of the capital is to the capital market -supply of the land is to the land market -demand for the land is to the land market

enhance productivity

to promote good economic outcomes, policymakers should strive to enact policies that -enhance productivity -enhance individuals market power -results in rapidly-growing quantity of money -all of the above are correct

$5

tony is the owner of tony taqueria. tony is a profit maximizing owner whose firm operates in a competitive market. an additional worker costs tony $200 and has a marginal productivity of 40 tacos. Asumming no other variable costs, what is the marginal cost of a taco -$200 -$8 -$5 -there is insufficient information available to answer this question

wages, fringe benefits, rents, profits, and interest payments

total income in the united states is comprised of -wages only -wages and fringe benefits -rents, profits, and interest payments only -wages, fringe benefits, rents, profits, and interest payments

increase both competition and specialization

trade between countries tends to -reduce both competition and specialization -reduce competition and increase specialization -increase competition and reduce specialization -increase both competition and specialization

sellers desire to produce and sell more than buyers wish to purchase

when the price of a good is higher than the equilibrium price -a shortage will exist -buyers desire to purchase more than is produced -sellers desire to produce and sell more than buyers wish to purchase -quantity demande exceeds quantity supplied

trade can make every nation better off

which is the most accurate statement about trade -trade can make every nation better off -trade makes some nations better off and others worse off -trading for a good can make a nation better off only if the nation cannot produce that a good itself -trade helps rich nations and hurts poor nations

demand and supply both decrease

which of the following events must cause equilibrium quantity to fall -demand increases and supply decreases -demand and supply both decrease -demand decreased and supply increases -demand and supply both increase

Markets are usually a good way to organize economic activity

which of the following is a principle concerning how people interact -markets are usually a good way to organize economic activity -rational people think at the margin -people respond to incentives -all of the above are correct

a tractor manufacturers demand for assembly- line workers is inseparably linked to the supply of tractors

which of the following is an example of a firms derived demand -workers with higher levels of education earn more, on average, than workers with lower levels of education -factors that decrease the demand for labor will decrease the equilibrium wage -a tractor manufacturers demand for assembly line workers is inseparably linked to the supply of tractors -all of the above are correct

a decrease in the price of cupcakes

which of the following would cause a movement along the supply curve for cupcakes -an improvement in technology for commercial mixers -a decrease in the price of cupcakes -an increase in the price of cake flour -all of the above are correct