Econ Exam
Which of the following does the law of demand specifically imply?
If the product price increases, quantity demanded will decrease.
In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?
In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.
Which of the following is often referred to as the basic postulate of economics?
Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits
____ 101. If consumer tastes are changing more in favor of the consumption of a particular good the
e. market demand curve would shift to the right.
Points A, B, and C in Figure 2-8 indicate consumption and investment for three economies. Other things constant, which of the economies is likely to grow more rapidly in the future?
economy C
If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively
elastic.
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources
even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use
Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?
The opportunity cost of ironing is greater for Harold
which one of the following is a positive economic statement
an increase in the minimum wage will reduce employment
The wages of house painters will tend to rise when
house painters can no longer find good paying alternatives for their labor.
The difference between positive economic statements and normative economic statements is that
positive statements are based on fact while normative statements are based on opinion
Middlemen are individuals who
provide services that reduce the cost of transactions and help achieve additional gains from trade.
When price is the rationing criterion, individuals have a strong incentive to
provide services to others in exchange there will be one person who gains and another who loses
"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?
the concept of opportunity cost.
Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result,
the population of black rhinos has increased.
In economics the term utility refers to
the subjective benefit or satisfaction a person expects to receive from a choice or course of action.
The opportunity cost of an action is
the value of the best opportunity that must be sacrificed in order to take the action.
If a good is scare
there will be shortages of it if the good is rationed by markets
Producers are willing to offer greater quantities for sale at higher prices because
they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses
To say that people make marginal decisions means that
they weigh the additional costs and additional benefits of various activities before they make a decision
In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is
transaction costs.
Refer to Figure 2-9. The opportunity cost of obtaining 10 additional toasters by moving from point B to point A is
zero, since the economy has the additional resources to produce 10 additional toasters.
Which one of the following statements is most clearly inconsistent with the economic way of thinking?
"If the government provides a good free to citizens, then the opportunity cost of the good is zero."
Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Consumer surplus for the three individuals is
$15.
Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that
. Georgia has a comparative advantage in producing peaches.
The production possibilities curve illustrates the basic principle that
. if all the resources of an economy are being used efficiently, more of one good can be produced only if more of another good is produced.
Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is
20 toasters.
Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce
400 bananas and no baseballs
Which of the following is a positive economic statement?
A tax on butter will reduce the quantity of butter sold.
Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry.
All of the above
Which of the following could be considered to be a secondary effect caused by making drugs such as marijuana, cocaine, heroin and meth illegal?
All of the above would be considered valid and important secondary effects of making drugs illegal.
Which of the following attributes of trade explain why it is important for economic prosperity?
All of the above.
Amanda decides to buy a dress that Hillary has for sale; they both agree on a price of $20 for the exchange. Which of the following best describes who gains and who loses from the trade?
Both parties expect to gain from this transaction.
Legislation to protect red-cockaded woodpeckers by making their trees off limits to loggers created incentives that resulted in the premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following?
Good intentions do not always lead to desirable outcomes; the problem of secondary effects
Which of the following is a positive economic statement?
Government control of rent decreases the number of new apartments constructed.
If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that
Harry reaped $10,000 of consumer surplus from the transaction
Which of the following is a positive economic statement?
If taxes are over 50 percent of national income, job creation falls
Which of the following is true of Figure 2-4?
If the economy operates at point B, it is impossible to increase the output of clothing without giving up food production
Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $15, then who would be willing to purchase the product?
Mike, Sandy, and Jonathan
In economics, man-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as
Physical capital goods
Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
Resource owners will gain by discovering and employing their resources in ways that are highly valued by others
Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?
The move involves no opportunity cost; it simply reflects the desires of the economy's citizens.
Economic choice and competitive behavior are the results of
Scarcity
What do economists mean when they state that a good is scarce
The amount of the good that people would like exceeds the supply freely available from nature
Economics is primarily the study of
The choices people make as the result of scarcity
Goods are scare because
The desire for goods is far greater than their availability from nature
A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?
The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase
How will consumers generally react to an increase in the price of butter?
They will substitute other goods like margarine for the more expensive butter.
Adam smith believed that if people were free to pursue their own interestes
They would generally apply their talents to unproductive activites that would generate little value to society
Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to cut for 50 years?
Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell
If cable TV service and satellite TV service are substitutes
a decrease in the price of cable will decrease the demand for satellite TV.
The law of comparative advantage indicates that
a group of people can increase their output when each good or service is supplied by the low opportunity cost producer.
In a market economy
a larger income for one person means it is possible for others to benefit also.
The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is
a larger output resulting from a more efficient use of resources
Assume the demand curve for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen,
a larger quantity of cookies will be demanded.
Which of the following would most likely cause the production possibilities curve for breadfruit and fish to shift outward from AA to BB in Figure 2-2?
a major technological advance
The economic way of thinking is
a set of basic concepts that helps one understand human choices
When economists say the demand for a product has increased, they mean the
a. demand curve has shifted to the right.
Private property rights involve
all of the above
Suppose that vegetarian lobby groups run large advertising campaigns that are successful in substantially lowering the consumption of beef. As a result of the substantially lower desire for beef, we would expect
all of the above.
Because the height of the demand curve measures the marginal value of the good to consumers, the fact that a demand curve slopes downward to the right illustrates that
as more of a product is consumed, consumers will value additional units less
The price elasticity of demand for a commodity is determined primarily by the
b. availability of good substitutes for the good.
Economists analysis assumes that
changes in the personal benefits and costs associated with a choice will exert a predicatable influence on human behavior
The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called
consumer surplus
Ceteris paribus, an increase in the price of a good will cause the
consumer surplus derived from the good to decrease.
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements
contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand
According to Adam Smith, individual self interest
could be either a positive or negative force for economic progress, depending on the moral influences of politcal leaders
When economists say the quantity demanded of a product has decreased, they mean the
d. price of the product has risen, and consequently, consumers are buying less of it.
The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price is the
demand curve
If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a
demand curve that is relatively flat (more horizontal).
If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a
demand curve that is relatively steep (more vertical).
When property rights are clearly defined and enforced, private owners will
develop and direct their property toward uses that others value highly because the market will generally reward them for doing so
The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles,
fewer red automobiles would be produced and sold.
Of the following goods, which is most likely to be quite inelastic?
gasoline
"Bill Gates has made billions of dollars producing and marketing computer software. Many workers and consumers must have suffered in order for Gates to amass such enormous wealth." The person who made this observation
has failed to understand the principle of opportunity cost.
For the typical student, taking an introductory course in economcis should
help the student learn to rationally analyze and systemaically think about social problems
In Figure 2-1, point A is
inefficient
If consumer purchases of a good are not very sensitive to the price of the good, economists say the demand for the good is relatively
inelastic
The law of demand refers to the
inverse relationship between the price of a good and the quantity demanded
The opportunity cost of choosing an alternative
is the value of the highest valued alternative forgone as the result of the choice.
If an economy is operating at a point inside the production possibilities curve,
its resources are not being used efficiently
The economizing problem is essentially one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants
The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is
lower than the equilibrium price
The basic difference between macroeconomics and microeconomics is that
macroeconomics is concerned with the forest (aggregated markets), while micro is concerned with the individual trees (subcomponents)
Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the greater potential for injury it creates by not wearing one in the unlikely event he is in an accident.
making a rational choice.
The difference between microeconomics and macroeconomics is that
microeconomics deals with narrowly defined units, and macroeconomics focuses on highly aggregated markets
Because information is costly to acquire,
none of the above are true.
Refer to Figure 2-9. The opportunity cost of obtaining 15 additional toasters by moving from point D to point C is
none of the above; the economy cannot move from point D to point C.
When the production possibilities curve is bowed out, resources are
not equally suited to the production of both goods
The value of a good is
objective or intrinsic.
the expression there is no such thing as a free lunch implies that
opportunity costs are incurred when resources are used to produce goods and services
Economists use the term ceteris paribus to indicate that
other things are assumed to be constant
Because of a late night out with friends, Alyssa decided to sleep in rather than attend her 7:50 a.m. economics class. According to economic analysis, her choice was
rational if Alyssa values the additional sleep more highly than the extra benefit she expects to receive from attending the class.
The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that
students will not take as good of care of these commonly owned bicycles as they do their own bicycles
When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare
the additional benefits of the second car with the additional cost of the second car.
In a voluntary exchange, if the seller of a product gains
the buyer must also gain; mutual gain provides the foundation for exchange
"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects
the law of comparative advantage
People are willing to pay more for a diamond than for a bottle of water because
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
Your professor loves his work, teaching economics. He has been offered other positions in the corporate world that would increase his monetary income by as much as 25 percent, but he has decided to continue working
the marginal benefit of teaching increased above the marginal cost.
A rational decision maker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost of the action.